Bankruptcy laws are often tough to understand given the numerous requirements, regulations and procedures that have to be observed when filing. However, bankruptcy laws are very important as they govern how bankruptcy is handled.
Federal Bankruptcy and Insolvency Act
The law governing bankruptcy in Canada is called the Bankruptcy and Insolvency Act and it is a federal law.
Bankruptcy is defined as a legal process which is designed to relive debtors of their debt by negotiating with their creditors for pay outs. They may only pay back a part of their debt to creditors but the process tries to ensure that both the debtor and the creditor are treated fairly.
The BIA facilitates this process and sets out rules and regulations on how the process works.
The BIA also sets out the debtor’s, creditors, trustee’s and the court’s duties and responsibilities in the process.
While many provinces also have bankruptcy laws, the federal law is supreme.
Provincial bankruptcy laws
Next to the BIA, some provinces have their own bankruptcy laws that fall in line with the federal legislation.
For example, Ontario has a few statutes that it follows for Ontarian debtors. Those statutes are:
- The Canadian Bankruptcy and Insolvency Act (BIA);
- Ontario Execution Act: the act addresses bankruptcy exemptions that define what you keep when you claim bankruptcy in Ontario;
- Limitations Act: how the statute of limitations affects old debt; and
- The Personal Property Security Act of Ontario: how secured creditors are treated in a personal bankruptcy.
Again, the BIA is the statute that is paramount over other bankruptcy statutes, meaning parliament has exclusive jurisdiction over bankruptcy matters. All provinces and territories must follow the BIA when it comes to bankruptcy and provincial legislation must be in compliance with the federal statute.
Provincial exemption laws
All provinces have exemption laws, meaning that some property that the person residing in the province or territory owns is not to be taken for the purposes of liquidating it to pay off creditors.
For example, in Alberta the exemption laws are outlined in the Alberta Civil Enforcement Act, which applies to the equity of an asset.
In Alberta, exempt property includes:
- Household furnishings and appliances up to $4,000;
- One motor vehicle up to $5,000;
- Tools of the trade up to $10,000;
- Unlimited medical and dental aids that you and/or your dependants require; and
- A principal residence worth up to $40,000 - however, if the person is a co-owner of the residence, the amount of the exemption allowed under this provision is reduced to an amount proportionate to that person’s ownership interest.
In addition, depending on the province, often “exempt property” will include farm property. For example, in Manitoba, exemption for farm property includes:
- Farm machinery, dairy utensils and farm equipment reasonably necessary for the proper and efficient conduct of agricultural operations for the next ensuing 12 months;
- The farm land upon which the person or family actually resides or which is cultivated by these individuals; and
- The house, stables, barns, and fences on the farm.
If you want to file for bankruptcy, you should contact a licensed insolvency trustee in your province or territory. Should you not be able to find or should you be unable to afford a LIT, you can apply to the Bankruptcy Assistance Program.
Bankruptcy and Insolvency Act
Bankruptcy and Insolvency at Glance