Frequently Asked Questions About Insolvency
July 10, 2023
Nobody is immune to financial difficulty, whether you are a consumer or run your own business. If your debt is too great that you cannot pay your creditors or owe more than you own in assets, you may be considered “insolvent” under Canadian law.
If you do not understand what it means to be insolvent and how the insolvency process works, the FAQ section below is for you. Find out the answers to some of the most frequently asked questions about insolvency to ensure that you fully understand what insolvency is and what to expect when you become insolvent.
If you are facing insolvency in Toronto, Ontario, or surrounding areas, Lawyer Matthew Harris has the reliable legal guidance and knowledge you need. Matthew Harris also serves debtors in Ottawa, Hamilton, and London.
FAQs About Insolvency
Below, you can find answers to some of the most frequently asked questions (FAQs) about insolvency in Canada.
What is insolvency?
You are insolvent when you (a) are unable to meet your monthly payment obligations to creditors or (b) owe more than you own in assets. If you become insolvent, you have the option of filing for bankruptcy or seeking debt relief through a consumer proposal, debt consolidation, or other options.
How common are insolvencies in Canada?
According to the official website of the Government of Canada, the total number of insolvencies in January 2023 was over 33% higher compared to January 2022, with consumer insolvencies increasing by 33% and business insolvencies skyrocketing by more than 55%.
What is the difference between bankruptcy and insolvency?
Many Canadians often use the terms “bankruptcy” and “insolvency” interchangeably. However, those are two separate terms with different meanings. Insolvency refers to a financial state where a consumer or business cannot meet their debt payment obligations, while bankruptcy refers to a legal process in which the debtor declares that the person can no longer pay creditors.
Another notable difference between bankruptcy and insolvency is that creditors can petition the court to declare their debtor insolvent and grant a receiving order to prevent the debtor from hiding or selling their assets.
What are the types of insolvency?
There are two main types of insolvency in Canada:
Personal insolvency is when an individual debtor cannot meet their financial obligations for paying creditors on time; and
Corporate insolvency, also known as commercial insolvency, is when a business cannot meet its financial obligations for paying creditors on time.
If you are dealing with any of these types of insolvency in Toronto, Ontario, or the surrounding area, contact Matthew R Harris Law P.C. for assistance. Lawyer Matthew Harris can help you take the right steps to achieve financial stability when you or your company are considered insolvent.
What happens when you get into insolvency?
If you are considered insolvent, and the bankruptcy court grants a receiving order, all of your assets stop being your property. It means that you cannot sell your assets. Instead, your assets will be managed by a Licensed Insolvency Trustee (LIT) assigned to your case. At this point, the insolvent debtor can declare bankruptcy or pursue other debt-relief options.
What are the debtor’s rights and responsibilities in insolvency?
Debtors have certain rights and responsibilities in insolvency that are governed by Bankruptcy and Insolvency Act (BIA). The main ones are:
The right to have all your options explained by a Licensed Insolvency Trustee
The right to make your own decisions as to how to proceed with your case
You will want to get legal counsel to ensure that your rights are respected during the insolvency process and that you are aware of your responsibilities.
What is a consumer proposal?
A consumer proposal refers to a legal settlement between creditors and a debtor to allow the latter to settle certain or all debts for less than they owe. The process is administered by a Licensed Insolvency Trustee.
Take Your Next Steps Towards a Brighter Future
If you are struggling financially and wonder if you are insolvent, get help from an insolvency lawyer. Lawyer Matthew Harris can guide you through your next steps to ensure that you understand all of your options and can achieve financial stability without any delay. Matthew Harris has an office in Toronto, Ontario, but serves clients in personal and corporate insolvencies in the surrounding area. Reach out to schedule a free 15-minute consultation today.