Bankruptcy is a legal process, governed by the Bankruptcy & Insolvency Act, applicable to businesses and individuals who have overwhelming debts and cannot repay them as they are due, causing legal actions from their creditors.

Bankruptcy is considered a viable solution when a business or individual has exhausted all options of repayment. They can then seek relief from all of their unsecured debt by filing a bankruptcy notice. This will stop all legal action against the business or individual from their creditors.

To file for bankruptcy the individual or business must meet the following criteria:

Owe at least $1000 in debt.
You do not have enough assets to pay off your debt.
You cannot make the payments when they are due.

Businesses and Individuals that declare bankruptcy must submit all of their assets to a Licensed Insolvency Trustee who then works with the creditors to come to a financial resolution.

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LAYMEN TERMS

Bankruptcy, in the simplest terms, is a legal procedure intended to help you clear all of your unsecured debts to make a fresh financial start.

Unsecured debts include credit cards, loans, overdrafts, and lines of credit. These debts can be cleared during a bankruptcy, however, secured debts cannot be cleared. Secured debts are mortgages and car loans.

Declaring bankruptcy must be through a Licensed Insolvency Trustee who will then work with the person or business’ creditors to settle all debts. In many situations, a person or business will have their assets liquidated (sold) to make some measure of payment back to the creditors. Assets usually include real estate property, cars, boats, and products the company may sell.

HOW DOES THIS TERM APPLY TO YOU

If you are a business:

A business that sells paint and supplies has declared bankruptcy as it can no longer repay its debt due to low sales and profit. An Insolvency Trustee is placed in charge and will work with the creditors and the business on selling any assets the company has. For instance, the company owns the building its store is located in, as well as any stock that is left over after the store is closed. The insolvency trustee will work with the business to sell everything so the profits can go to existing creditors to pay off any amount of the debt owing. When a business goes bankrupt the company dissolves and it no longer will exist. You cannot reopen the company nor make any sales, purchases or profits under that company again.

If you are an individual filing personal bankruptcy:

If you are filing personal bankruptcy then the same applies as a business in the sense that an Insolvency Trustee will work with you to sell off any assets you may have like a house, car, or any stocks or bonds. This way some of the outstanding debt can be paid to the creditors. When you file for personal bankruptcy this will affect your credit for seven years. You will not be able to acquire or establish any credit for those years. You will also have to disclose the fact that you have gone bankrupt to any financial institution when applying for credit after the initial seven years.

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