Because we often read and watch new stories from our southern neighbours we’ll hear about individuals and businesses filing for Chapter 7 bankruptcy, Chapter 11 bankruptcy or Chapter 13 bankruptcy. This can be confusing as the terminology we use in Canada to describe our bankruptcy options is different from the terminology that is used in the U.S. Not only is the terminology different but so are the laws that govern and protect both consumers and businesses.
While there’s nothing wrong with understanding the financial landscape of the U.S., we think it’s very important that all Canadians understand what their debt relief options are and how they differ from the options available to American consumers and businesses. We’ve provided below, a comparison of the court approved debt solutions in the U.S and Canada.
Chapter 7 Bankruptcy
Summary Bankruptcy (Personal bankruptcy)
|Chapter 7 is probably the type of bankruptcy you hear about most often. This is because it’s the most common type of personal bankruptcy in the U.S. This means that if an individual finds it necessary to file for bankruptcy in the U.S. they will more than likely file for Chapter 7. It is also possible for a business to file for Chapter 7.|| |
In Canada the equivalent to Chapter 7 would be to file a personal bankruptcy (or a summary bankruptcy). This procedure is available to all Canadians who currently have no way to pay back their debts. A personal bankruptcy releases an indebted individual from the responsibility of paying back their creditors. It is meant to provide a fresh start for someone who has no other option but to file for a personal bankruptcy.
Chapter 11 Bankruptcy
Division I Proposal or a CCAA filing
|Filing for a Chapter 11 bankruptcy or petition is typically reserved for businesses or corporations. Although it is possible for an individual with a very high debt load to file for a Chapter 11 bankruptcy in the U.S. This type of bankruptcy includes a restructuring process meant to provide a business or corporation with protection from their creditors. The main goal is to give a business more time to restructure their debt so they can continue to operate.|| |
The equivalent of a Chapter 11 bankruptcy in Canada would be either a Division I Proposal or a CCAA filing. A Division I Proposal can be filed by either a company or an individual and a CCAA filing can only be filed by a corporation with a very large amount of debt.
These two options are meant to provide both individuals and businesses with the opportunity to settle a portion of their debt. These options also provide protection from creditors while a company or individual works to regain their financial stability.
Chapter 13 Bankruptcy
Consumer Proposal (aka Division II proposal)
|A Chapter 13 bankruptcy is meant for individuals or proprietorships that still have enough income to pay off their debts. For someone to file for a Chapter 13 bankruptcy they must have debt they are having trouble paying off but still have a significant income. The main point of a Chapter 13 bankruptcy is to come to an agreement with the creditors and create a repayment plan so that the individual or company can pat back their debts over a number of years.|| |
A consumer proposal is the equivalent in Canada to the American Chapter 13 bankruptcy. A consumer proposal is a formal and legal debt settlement arrangement between a creditor and an indebted consumer. The agreement allows the consumer to consolidate their debt and reduce the amount they owe and then repay it over a period of time no longer than 5 years.
All forms of bankruptcy should be considered only after all other options have been exhausted and only in the most extreme debt situations. Especially for an individual, bankruptcy can be an extremely difficult decision to make and should not be entered into lightly. If you are considering bankruptcy as a solution to your current debt situation we greatly encourage you to seek professional advice before you make your final decision.
Need More Information?
If you’re currently thinking about any type of bankruptcy as a debt relief option please take a look at these articles for all the information you’ll need to make the best and most informed choice for your current financial needs.