All About the Bankruptcy & Insolvency Act of Canada

What exactly is the Canadian Bankruptcy and Insolvency Act and how can it help me?  You wouldn’t believe the number of times I am asked that question in a day, and for the longest time I would simply reply in the affirmative, then move on.  But then I came across an interesting piece of information that literally made me stop in my tracks. What I at first thought was nothing more than a pamphlet on the Canadian Bankruptcy and Insolvency Act turned into something much more.  It was about a man who has set out on a personal mission to end the plight of the common man.  It was the proletariat, he said, that caused the misery of the working class and that they must be stopped at all costs.  Who was this man you ask?  Well how about Karl Marx?  Does that sound accurate? It was the communist manifesto, and it’s something I recommend you read before you die.

Alas, this isn’t why I set out to start this webpage, but rather to inform you about what this wonderful act can do for you.  So in layman’s terms this act is a federal statute that is uniformly applicable throughout the whole of this great country many of the locals refer to as Canada.  It is to preserve the debtor’s assets.  It sets out to do it in a fair and orderly manner.  Yah, I know what you’re thinking, impossible.

Okay, so farmers and fishers cannot be forced into bankruptcy.  Makes sense at last, but it does not apply to insurance companies?  I suppose, but more importantly it is is set to act as a further objective and makes for a viable business that allows the forgiving of unpaid debt, but leaves an insurmountable burden, and also (for reasons best left unexplained) that the creditors are on the hook (so to speak).  Stick that in your pipe and have a puff. You are going to quickly realize that this isn’t no wonder drug.

Bankruptcy is a process in many countries that allows an individual to obtain a court-ordered relief from their creditors for the debts they have amassed. Declaring for bankruptcy can be a necessity for some people but in many cases there may be other options available.

There is no easy answer when it comes to deciding whether to file for bankruptcy or not. The best thing you can do is to speak with a bankruptcy attorney or credit counselor first. They will be able to evaluate your financial situation and suggest a viable option.

The type of debt that you have will play a significant part in whether you are able to file for bankruptcy. It will also affect the type of bankruptcy that you pursue.

Why bankruptcy might be right for you:

• A bankruptcy will allow you to cancel significant debts, including things like tax debt. In some cases you may pay back nothing.
• It protects you from most legal action. Your creditors and their collection agencies are also not allowed to contact you anymore.
• You are also protected from cuts to your public utilities in most countries.
• You can keep your furniture and sometimes even your home and car.
• In most cases the process will remain confidential.

Why bankruptcy might wrong for you:

• A bankruptcy will leave a nasty record on your credit rating.
• Your home is likely to be seized and in most cases your car.
• You may still have non-dis-chargeable debts that cannot be cancelled by filing for bankruptcy.

There are alternatives to bankruptcy in many countries such as debt management plans in the United States and IVAs in the United Kingdom. Some people find that simple budgeting does the trick too.

From a legal and financial standpoint, declaring for bankruptcy is quite a complicated procedure. It can also cost you several thousand dollars. You don’t need to go down the path to bankruptcy alone either. Find a reputable bankruptcy attorney to help walk you through the process and to help you with paperwork.

You may feel vulnerable with large levels of debt so be very cautious of any company that can guarantee to ‘erase your debt.’ If you’re thinking about declaring for bankruptcy the best thing you can do is get informed and then get help if you need it.

Many cite the earliest description of the basic concept of bankruptcy to be found in Deuteronomy 15:1-2:

At the end of every seven years, thou shalt make a release. And this is the manner of the release: Every creditor that lendeth ought unto his neighbor shall release it: he shall not exact it of his neighbor, or of his brother, because it is the Lord’s release.

Different forms of bankruptcy have been around since biblical time. The root of the bankruptcy comes from the period between 9th and 14th century in Italy.

If you had refused to pay your debts then those you owed money to would storm into your workplace or home and destroy your workbench. In Italian “banca rotta” means broken workbench and it was that phrase that would serve as the origin of the word bankruptcy.

The first recorded bankruptcy laws were established not in Italy but in England during the 16th century. The original purpose of bankruptcy was to help creditors – not debtors. During the time of King Henry VIII, bankruptcies allowed creditors to take all of the assets of trader who was unable to pay back their debt. To make matters worse, the debtor was then subject to imprisonment for their failure to pay their debt and could lose all of their freedom.

In the United States, bankruptcy laws were established under a civil code and modern bankruptcy is based on Article 1, Section 8 of the Constitution. It gives Congress the “exclusive power to establish uniform laws on the subject of bankruptcies.” The first bankruptcy laws came into effect in 1800 when the country was in a down economy. During the 19th and 20th centuries many bankruptcy laws were changed mainly because of differing economic conditions in the US.

In 1978 the Bankruptcy Reform Act passed, making it easier for businesses and individuals to dissolve their debts. This Act gave debtors a chance to have a fresh start and it helped stimulate the economy as consumers could keep spending after they had gone bankrupt. During this time many other debt solutions grew popular including a number of debt management processes.

The Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986 changed a significant number of bankruptcies laws relating to family farmers. It also established a trustee system in the United States.

In 1994, the Bankruptcy Reform Act was revised and had a great impact on the mortgage banking industry as well as the service of mortgage loans in the US.

People that have taken on a lot of debt are sometimes left pondering their options and for some people bankruptcy might be their only choice. Bankruptcy is not for everyone but in some cases it can be the right path to choose. There are a few reasons why you might want file for Chapter 7 or Chapter 13 bankruptcy but going this route is not without consequences.

Why You Might Want to Consider Bankruptcy

1) You have already tried to negotiate with your creditors to pay down a portion of your debt. If your creditors are not able to work with you to come up with a repayment plan then you might not have any other options. Your creditors may decide that they want their full payment and you may not be able to afford that. If you can pay back your debt then you should do so. Avoiding bankruptcy should be your top priority.

2) The liabilities that you have, far exceed your assets. This is another reason why many people decide to file for bankruptcy. You may not be able to afford to pay back your debt with the money that you make. If your assets aren’t worth much and you’ve racked up huge debts you might not have any other options but bankruptcy.

3) You want to keep your IRA. There are people that are concerned about the money they have amassed in their IRA that might be liquidated if they file for bankruptcy. In 2005, a Supreme Court ruled that federal bankruptcy would shield IRAs from creditors, which means you can keep your IRA safe and sound.

Why You Should Avoid Bankruptcy

1) There is a personal impact to bankruptcy. For many people bankruptcy gives the feeling that you’ve failed or lost and that you are now unable to turn your finances around. These decisions can effect personal lives and important relationships with family and friends.

2) You wont be able to borrow for a while. Bankruptcy will stay on your credit record for a while and it will make it difficult for you to obtain a line of credit. You might not be able to sign up for monthly phone plans or credit cards for a period of time.

3) You may lose large assets. When you file for bankruptcy your assets may be sold off to pay back your creditors. You could lose your home or car and be left with nothing so bankruptcy should be avoided whenever possible.

1. Cancel your television subscription.
2. Start getting books at the library rather than buying them.
3. Sign up for lots of programs that offer free customer rewards.
4. Change the air filter on your car occasionally to save on gas.
5. Don’t buy cheap appliances; buy ones that are reliable.
6. Make gifts rather than buying them.
7. Spend thirty days thinking about major purchases to make sure you need to buy them.
8. Buy a thermostat that is programmable.
9. Stick to your shopping lists.
10. Get a friend or family member to cut your hair.
11. Move into a smaller home.
12. Whenever possible, ask for fees to be waived.
13. Make your own alcohol.
14. Switch your bank accounts if you can find better user fees.
15. Use public transit.
16. Do your own basic car and home maintenance.
17. Make a budget and stick to it.
18. Buy used sports equipment, DVDs, and clothing rather than new items.
19. Have your friends over to your house rather than going out.
20. Take your credit card information off your online profiles.
21. Repair damaged clothing rather than throw it out.
22. Stop subscriptions to magazines that you don’t read.
23. Keep lots of air in your tires to save gas.
24. Bring a lunch to work or school.
25. Live in a cheaper city or neighbourhood.
26. See what activities are available at your local community centre or Parks & Recreation board.
27. Give someone the gift of a service rather than an object.
28. Don’t use purchases to relieve stress.
29. Try out no-name products.
30. Prepare meals at home.
31. Cancel club memberships that you no longer use.
32. Contact your credit card company and see if you can get lower interest rates and fees.
33. Give your credit card to a friend or family member when you don’t need it.
34. Use price comparisons at the grocery store.
35. Buy DVDs and video games that have a replay and rewatch value to them.
36. Drink more water everyday.
37. Cut down on fast foods and other ‘convenience foods.’
38. Quit your expensive habits like alcohol, drugs, and smoking.
39. Always turn off the lights when you’re not in a room.
40. Plan meals around sales at your local grocery store.

A personal budget can help you get your finances in order and avoid the accumulation of large amounts of debt. It will also allow you to plan for the future and to pay off any outstanding debt that you may have now.

Why should I budget?

If you make an accurate budget it will allow you to cut out unnecessary expenses in your life while saving you money. If your goal is to pay down debt then a budget will help you on that path also. A budget can also allow you to make a realistic payment schedule so that you can pay back your creditors over a set period of time.

The Budget

There are lots of budgeting websites and software but in most cases an free spreadsheet or even a piece of paper will serve the purpose. In your budget planner you will have headings that list all of your income and spending.

Spending

Start your budget by calculating the total amount that you spend each month. Cross-reference between receipts, all of your bills, and your recent bank statements. Don’t forget to include money that automatically comes out of your account – things such as mortgage payments, car insurance, or child care costs. After that is complete you’ll want to write down the costs of all of your everyday items such as gas, food, clothing, pet food, and even things like newspapers or cigarettes. Be very thorough with these details.

You’ll also want to add, at the bottom of the sheet, an estimate of the cost of unexpected expenses. These unexpected costs are things like Christmas presents, car maintenance, house repairs, holidays, and medical or dental bills. Work out your total outgoings over a one-year period and then divide that amount by 52 weeks or 12 months depending on your preference between a weekly or monthly budget.

Income

After you have a list of your outgoings you will need to calculate your income:

•Look at pay slips to figure out an accurate wage figure
•Look at any welfare or child support statements
•Include any contributions from adult children or renters in your home

When you’re calculating this information make sure to ignore any uncertain or one-off amounts and average out irregular income from things like part time jobs.

Work out your total income over an average month or week and then compare that to your outgoings over the same period of time. This will show you how much money you have to spare or whether you’ve over-committed with your budget.

Dealing with a Shortfall

If your spending is greater than your income you will need to put some serious thought into prioritizing your spending. You will need to look at cutting back on certain things so that you can afford to live. If you want to pay back debt then you may have to try even harder and look at ways to spend even less each month. Make certain that your household bills are covered first though.

Another option is to find other forms of income or to find a job that pays better than the one you might have now. If you start noticing spare money each month, after your bills have been paid, you can start looking into savings and investments so that you can set yourself up for the future.