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If you ever have significant trouble paying your bills and become insolvent, you may consider filing for bankruptcy. Doing so will eliminate all of your debts to help you start over, financially speaking. By claiming bankruptcy, you can finally be rid of all your debt that continues to mount and stop all the collection calls.

What Is The Bankruptcy And Insolvency Act?

Basically, the Bankruptcy and Insolvency Act is a federal statute that manages the laws on bankruptcy in Canada, as well as consumer proposals. The government of Canada established this Act as a means of assisting Canadians who have fallen upon hard financial times and are unable to manage their current debt load.

Essentially, the goal of the Bankruptcy and Insolvency Act is to protect those who file for bankruptcy and the creditors they owe. It also keeps the court and Licensed Insolvency Trustees up-to-date on their obligations, duties, and powers.

Types Of Debt Relief Solutions Offered Under The Bankruptcy and Insolvency Act

The Bankruptcy and Insolvency Act covers a handful of debt relief options, depending on the type and amount of debt you’re carrying and your financial situation:

Consumer Proposal 

A consumer proposal is a legally binding process facilitated by a Licensed Insolvency Trustee (LIT), who will work with you to come up with an offer to present to your creditors. Your proposal may include an offer to either repay your creditors a portion of what you still owe, extend the time frame within which to repay your debt or both.

A consumer proposal can help you deal with unsecured debts ranging from $5,000 to $250,000. Since only unsecured debts such as personal loans are dealt with, loans such as mortgages and car loans are excluded. That means your assets will not be at risk of being seized.

Once your LIT reviews your debts and finances, they’ll prepare a proposal to your creditors that would entail paying off a share of your outstanding debt. The offer would detail a new repayment schedule whereby you would make monthly payments for up to 5 years. 

Your creditors will vote to either accept or turn down the proposal. If it’s accepted, you’ll be alleviated of your debts once the term ends. 


Bankruptcy is a process that is governed by provincial and federal law. It is designed to alleviate unfortunate debtors from their mounting debts. A Licensed Insolvency Trustee is appointed to consumers who file for bankruptcy.

By the end of the process, the individual who initially filed for bankruptcy is released from their debts (with certain exceptions).

Bankruptcy filings are governed by the Bankruptcy and Insolvency Act (BIA), a federal law that oversees bankruptcy filings in Canada. Bankruptcy is also governed by individual provincial laws as well. That said, the federal BIA would take precedence over any provincial laws should there ever be a dispute between the two.

What Is A Stay Of Proceedings?

A stay of proceedings is a court ruling that stops legal action against you, no matter which option under the Bankruptcy and Insolvency Act you choose. When a stay of proceedings is filed, you’ll receive creditor protection. That means creditors will not be able to take any legal action against you. 

More specifically, the following actions will be halted:

  • Interest payments 
  • Wage garnishments (except for support payments)  
  • Calls from collection agencies and creditors 
  • Any legal action against you
  • Any action from the Canada Revenue Agency (CRA) to collect outstanding taxes

What Does the Bankruptcy Insolvency Act Govern?

There are all sorts of items that the Act governs, including the following:

  • Obligations and responsibilities of trustees and the court
  • How to apply for bankruptcy
  • Consumer proposals to creditors
  • Roles of the consumer in both bankruptcy and consumer proposals
  • How properties are dealt with
  • How assets are handled by trustees and creditors
  • Ramifications of not following proper protocol during bankruptcy proceedings
  • Alternatives to bankruptcy
  • How security firms are dealt with
  • How to handle international bankruptcy filings

Why Does the Bankruptcy Insolvency Act Exist?

This Act was established in order to help consumers resolve their debt issues. While there are several other avenues that they may pursue in order to settle their debt, bankruptcy is often the last resort. There are plenty of reasons why consumers may choose bankruptcy over other alternatives, such as:

Any situation that places consumers in a position to be unable to pay their debt obligations may force them to seek out measures to deal with their debt and eliminate it altogether. Bankruptcy can help with this and the Bankruptcy Insolvency Act is meant to help consumers facilitate such a process.

Does The Bankruptcy Act Protect The Creditors?

Not only does the act protect consumers, but it also helps ensure that any creditors who are owed money are treated fairly as well. The Act protects creditors’ right to recoup as much money owed to them as possible.

As far as creditors are concerned, they might have to write off some or all of the debt that is owed to them. That said, the Bankruptcy and Insolvency Act ensures a fair distribution of assets and money to creditors while still giving consumers the chance to get rid of debt, and maintain a decent standard of living. It also ensures that one creditor is not being treated more favourably than others.

Final Thoughts

The rules under the Bankruptcy and Insolvency Act have been modified over the years and are always revisited to ensure that they continue to treat both consumers and creditors as fairly as possible during bankruptcy filings. Find out more about how bankruptcy might help you deal with your debts by consulting with a licensed insolvency trustee.

Bankruptcy and Insolvency Act FAQs

What is a LIT?

A LIT stands for Licensed Insolvency Trustee. These professionals are licensed by the Office of the Superintendent of Bankruptcy to legally administer bankruptcies and consumer proposals. A LIT is required to inform you of all your debt relief options, not just bankruptcy or a consumer proposal.

Will I lose my assets if I declare bankruptcy?

If you file for bankruptcy, your assets will be reviewed. Your LIT will determine if they should or shouldn’t be seized or sold to help cover your debts. Some assets are exempt from bankruptcy, which varies depending on the province or territory.

What will a stay of proceedings not stop?

A stay of proceedings will not stop everything. Here are a few examples of things that will not halt:
  • Your vehicle being seized if you have a car loan
  • Spousal or child support payments
  • Certain penalties or fines
Your LIT will determine what debts will be included in your bankruptcy. A creditor may dispute something if they disagree.
Can bankruptcy affect my credit score?
When you file for bankruptcy, you’ll receive an R9 credit rating, which is the lowest rating you can receive. This can negatively impact your credit score depending on the credit scoring model used,

Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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