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Bankruptcy and Insolvency Act of Canada

There are a variety of reasons you might find yourself in extreme debt. You may encounter a health issue, job loss, or become the victim of identity theft. You can’t predict what financial surprise is waiting around the corner. Sometimes excessive debt can happen quickly due to an unexpected emergency. Other times it can take years to accumulate and then, one day, it becomes too big to manage.

If you’re at a point where you can no longer pay your bills, you may want to familiarize yourself with the Bankruptcy and Insolvency Act (BIA). The BIA is the document that governs Canada’s two debt solutions –Consumer Proposal and Bankruptcy. In this article, we outline what the Bankruptcy and Insolvency Act of Canada is and how it can help honest Canadian debtors like you navigate a tough financial situation.

What is the Bankruptcy and Insolvency Act of Canada?

In Canada, insolvency is a legal process managed by federal legislation called the Bankruptcy and Insolvency Act (BIA). This document governs two debt solutions – Consumer Proposal and Bankruptcy. The purpose of the BIA is to give Canadians experiencing crippling debt a way out. The BIA acts as a playbook for anyone involved in an insolvency proceeding, whether personal or corporate. The Act outlines the specific duties of everyone involved and details of the Consumer Proposal and Bankruptcy laws and each of the processes.

Office of the Superintendent of Bankruptcy

The Office of the Superintendent of Bankruptcy (OSB) is the federal agency responsible for administering Bankruptcies and ensuring the integrity of the process. The OSB is also responsible for regulating Licensed Insolvency Trustees (LITs), the professionals responsible for administering Consumer Proposals and Bankruptcies.

Licensed Insolvency Trustee (LIT)

A Licensed Insolvency Trustee (LIT) is the only federally regulated professional authorized to administer a Consumer Proposal or Bankruptcy. During a Proposal or Bankruptcy, an LIT will deal directly with your creditors on your behalf. They will walk you through each step of the insolvency process and answer all of your questions along the way.

An LIT takes care of all aspects of the process, from keeping records and documents of the legal proceedings to communicating with the OSB and paying your creditors. When you enter into a Proposal or Bankruptcy, you don’t have to do it alone. An LIT is there to support you.

The Bankruptcy Act details all aspects of an LIT’s position, from ethics to fees and their specific duties throughout the insolvency processes. Because everything is standardized and closely monitored by the OSB, you can feel more confident in the process and not worry about getting duped into paying an unnecessarily high fee.

Insolvency Proceedings

As mentioned, there are two types of debt relief options available to you if you need help getting out of debt, the Consumer Proposal and Bankruptcy.

Consumer Proposal

A Consumer Proposal is typically preferred to Bankruptcy because you get to keep more of your assets, and it does less damage to your credit score. In a Proposal, you work with your LIT to develop an offer to your creditors (the proposal), where you agree to pay a percentage of what you owe them. In a Proposal, you can also ask to extend the amount of time you have to pay your debts, or you can request both. Your LIT will work with you and the creditors so that you do not have to worry about it. The terms of a Proposal can not exceed five years.

To be eligible for a Proposal, your debts can not exceed $250,000, not including your mortgage. You must also be insolvent (unable to pay your debts on time) and have no open proposals.


While many people resist the thought of having to file for Bankruptcy, sometimes it is the right (or only) choice. In Bankruptcy, you must surrender most of your assets, although some items are exempt – See provincial exemptions in canada. You can also expect your credit to plummet for up to seven years. This can make it very difficult to borrow money until your Bankruptcy is discharged. However, Bankruptcy offers the opportunity for a new financial beginning. It can help eliminate a large amount of your debt, giving you and your family a chance to get back on your feet.

Plus, as soon as you file for Bankruptcy, you can take advantage of many creditor protections, including the cessation of harassing creditor phone calls, wage garnishment, and interest payments on unsecured debts.

To be eligible for Bankruptcy, you must be insolvent and have a minimum of $1,000 in unsecured debt.

Which Debt Relief Option is Right For You?

Facing the fact that you might have to file for a Proposal or Bankruptcy can be daunting. No one wants to find themself in an unmanageable amount of debt, but life happens, and many people become financially overwhelmed. If you can no longer pay your bills on time, an insolvency proceeding can offer credit protection and can help to eliminate some of your debt.

If you need help but you’re not sure whether a Consumer Proposal or Bankruptcy is the best option for you, a Licensed Insolvency Trustee can assist you in making a decision. A LIT is equipped to help you evaluate your unique financial situation and can explain the pros and cons of each debt management option.

Speak to an LIT Today

If you have questions about the Bankruptcy and Insolvency Act of Canada or you need assistance managing your debt, reach out to an LIT today. At Allan Marshall and Associates, we are here to help. You don’t have to deal with your debt alone. Call us at 1-888-371-8900 for a risk-free 30-minute conversation with one of our experts, or find us online.