Difference Between Bankruptcy and Insolvency in Canada

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In Canada, insolvency means you can’t pay your bills or your debts exceed your assets. It signals financial trouble, but it doesn’t equate to bankruptcy. Bankruptcy is a legal process where a licensed insolvency trustee sells your assets to pay creditors, providing a fresh start under the Bankruptcy and Insolvency Act (BIA).

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Question

What’s the difference between bankruptcy and insolvency in Canada? I’m confused about how bankruptcy differs from insolvency in Canada and which applies to my situation.

From: Anonymous, British Columbia (BC)

Answer

In Canada, bankruptcy and insolvency might seem like the same thing, but they actually mean different things. Insolvency is when you can’t pay your bills or your debts are more than what you own. It’s a sign you’re in financial trouble, but it doesn’t mean you’re bankrupt yet. Bankruptcy, however, is a legal step you take when you’re insolvent to get rid of certain debts and start over. This process involves handing over your assets to a licensed insolvency trustee who sells them off to pay your creditors. This way, your financial situation is officially recognized under the Bankruptcy and Insolvency Act (BIA).

From: Insider Scott

OSB Based Answer

In Canada, insolvency refers to a financial state where an individual or corporation is unable to meet their debt obligations as they come due, as outlined in the Bankruptcy and Insolvency Act (BIA), RSC 1985, c 11, section 2. Bankruptcy, on the other hand, is a legal process initiated when a debtor files for bankruptcy under the BIA, which leads to the discharge of debts, contingent upon the proceedings following sections 42 to 60 of the Act. In summary, insolvency is the condition indicating financial distress, while bankruptcy is the legal process to address that condition.

From: This answer is provided by scanning the OSB Bankruptcy & Insolvency Act and related directives

References

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