Glossary of Terms

Glossary of Terms

A  B  C  D  E  F  G  H  I  J K L  M  N  O  P  Q  R  S  T  U  V  W X Y Z

 

 

A

  

Absolute Discharge 

 

The bankrupt is totally freed of all bankruptcy duties and debts provable in the bankruptcy, except those debts referred to in section 178(1) of the Bankruptcy Insolvency Act (BIA).

 

Annulment

Legal procedure for declaring an act invalid or void. The act is declared to have had no legal existence. For example: a bankruptcy may be annulled under certain conditions; a proposal may be annulled if the terms are not met.

 

Assets and Property

In a personal bankruptcy in Canada, you must assign all your assets to the trustee, except for exempt property (such as basic furniture, tools-of-trade and, under certain circumstances, the goods and services tax credit payments). Exempt property will vary from province to province. Your trustee can tell you what bankruptcy exemptions in your province.

 

Assignment in bankruptcy 

A transfer by an insolvent person to a trustee of all his property for the general benefit of his creditors.

 

B

 

 

Bankrupt

 

This is the legal status of a person who declares bankruptcy until a discharge order is issued. A person who has filed bankruptcy or against whom a bankruptcy order has been made or whose proposal under Part III Division I has been rejected by the creditors or the legal status of that person.

 

Bankruptcy

 

The legal process where an individual or business resident in Canada files for protection from their creditors under the Bankruptcy and Insolvency Act. The state of being bankrupt or the fact of becoming bankrupt.

 

 

Bankruptcy and Insolvency Act (BIA)

The Bankruptcy and Insolvency Act (the Act or BIA) is the federal law which regulates bankruptcy and consumer proposals in Canada. The Act also regulates corporate debt recovery programs including bankruptcy, commercial proposals and CCAA proceedings. The BIA defines all rules and procedures around the process of filing bankruptcy as well as the administration of proposals. It falls under the responsibility of the Office of the Superintendent of Bankruptcy (OSB) at Industry Canada.
 
Bankruptcy Court


This is a court in which a judge or registrar will decide on the bankrupt’s application for bankruptcy discharge and other insolvency matters.


Bankruptcy Discharge

 

The final step in bankruptcy proceedings, a discharge is the release of the individual from the legal obligation to pay back what is owed, as of the date of the filing of the bankruptcy. 

Bankruptcy Estate

 

The term used to describe the assets administered under bankruptcy. These are assets assigned to the Bankruptcy Trustee and sold for the benefit of creditors.

All funds received by a Licensed Insolvency Trustee from any source are placed into a trust fund. This would include surplus income payments, funds from the sale of non-exempt assets, tax refunds as appropriate etc. Out of these funds, the trustee is entitled to a set fee as determined by a Government set tariff and then any remaining funds are distributed by the Trustee to the Unsecured Creditors.


Bankruptcy Trustee

 

See Licensed Insolvency Trustee (LIT).

C

  

Certificate of Discharge 


A legal document issued by a LIT to a first- or second-time bankrupt which has the same effect as an Absolute Order of Discharge.

 

Certificate of Full Performance

 

Once you have made all required payments and completed your duties in a proposal, your consumer proposal administrator will issue to you and the creditors a Certificate of Full Performance, which officially discharges the debts included in your proposal.

 

Conditional discharge


The individual may be required to pay a certain amount of money during a specified period, usually based on the their financial ability to make payments. They may also be required to perform some task (i.e. attend counselling) or provide the LIT with information (i.e. tax slips) as a condition of discharge. The specified conditions must be fulfilled in order to obtain an absolute discharge.

 

Consumer Proposal

 

A legal agreement between an individual and creditors to settle debts for less than the full amount owing filed under the Bankruptcy and Insolvency Act. A consumer proposal is available to individuals (not corporations) with total debts (excluding the mortgage on their principal residence) not exceeding $250,000. If two people, such as a husband and wife, have common debts, they may file a joint consumer proposal, provided their debts (excluding mortgage) do not exceed $500,000. A consumer proposal is sometimes called a Division II proposal. Individuals with debts of $250,000 or more may file a Division I proposal to creditors. A consumer proposal can only be filed by a Licensed Insolvency Trustee acting in their capacity as a Consumer Proposal Administrator. Consumer proposals are sometimes referred to incorrectly as Government Debt Settlement programs.

Consumer Proposal Administrator

 

An administrator of consumer proposals is a trustee in bankruptcy or a person appointed by the Superintendent of Bankruptcy to administer consumer proposals. All trustees at Bromwich+Smith are licensed consumer proposal administrators.

 

Conveyance

The transfer of real or personal property from one person to another by writing or otherwise; includes a gift, encumbrance or limitation of use.

Co-signer

 

Your bankruptcy does not eliminate the responsibility of anyone who has guaranteed or co-signed a loan on your behalf. For example, if your parent co-signed a loan for you, that parent would be liable to pay the loan in full even if you decide to declare bankruptcy. Your trustee can advise you on how co-signers can be protected in bankruptcy.

Counselling

 

Both individuals filing for bankruptcy and those making a consumer proposal are required to go through counselling sessions with a qualified counsellor. You will be required to attend two sessions, which primarily cover good financial management (including prudent use of consumer credit and budgeting principles); developing successful strategies for achieving financial goals and overcoming financial setbacks; restoring one’s credit rating and at any overtime, and where appropriate, making referrals to deal with non-budgetary causes of insolvency (e.g.: gambling, addiction, marital and family problems, etc.)

Credit Counselling

 

Every individual who files personal bankruptcy or makes a consumer proposal to creditors must attend two mandatory credit counselling sessions during the process. The objective of the credit counselling process is to help the debtor identify causes of financial problems and develop tools and strategies (such as personal budgeting) to better manage money and credit after bankruptcy. Credit counselling also refers to the service offered by not-for-profit credit counselling agencies to help you develop a repayment plan to repay your debts in full known as a Debt Management Plan. 

Credit Rating

 

Credit bureaus, or credit reporting agencies, collect information about consumers’ financial affairs and sell the information to their clients, such as credit grantors, employers, and insurance companies. These agencies obtain information from various sources, including loan applications; public records which provide information related to such matters as bankruptcy, court judgments, and conditional sales contracts; and from credit grantors and collection agencies who provide credit files on a monthly basis. These files contain information such as the account number, the outstanding balance, and a nine-point rating scale, for example: R1 indicating that payment was made on time; R2 that payment was made 30 days late, but not more than 60 days; and R9 indicating a bad debt or one that has been placed for collection and it also applies to bankruptcy.

It should be noted that your credit rating is set by your creditors. Credit bureaus only pass on that information to their clients. The decision as to whether or not to grant credit to an applicant is made by the credit grantor, not the credit bureau. It is the lender’s individual credit scoring system that determines access to credit.

Creditor

 

A creditor is a person, institution or business to whom money is owed. Secured creditors are creditors who have taken some measure to protect themselves and hold a mortgage, pledge, lien or similar instrument on, or against, your property. If they are not paid, they can enforce their claims by recovering the assets on which they hold security.

Unsecured creditors are creditors who do not have any security for the debt owed to them.

A preferred creditor has a priority claim to funds in the bankruptcy estate.

D

  

Debt Consolidation

 

Debt consolidation is the taking out of a new loan to repay several outstanding loans. The objective is to combine several high interest debts into one, lower interest loan payment. Sometimes debt consolidation can refer to the consolidation of several debts into one, monthly payment through a debt relief program including a debt management plan, debt settlement program or consumer proposal. While each of these programs can consolidate debts, they are not considered a new debt consolidation loan but rather a debt repayment plan.

Debt Management Plan (DMP)

 

A debt repayment agreement between a debtor and a creditor, made with the assistance of an accredited credit counsellor, allows for the repayment, in full, of specified debts over a period of time, usually up to 5 years. Not all debts are included in a debt management plan and creditors are not legally bound to the agreement. A consumer proposal is a form of debt management program and is a debt reduction or debt settlement agreement made between a debtor and his unsecured creditors with the assistance of a consumer proposal administrator.

Debt Settlement

 

An agreement in which the creditor agrees to accept partial payment from the individual as payment in full. In Canada, there are two forms of debt settlement programs: informal debt settlement and formal debt settlement, known as a consumer proposal. A consumer proposal is a legally binding arrangement made through the Bankruptcy & Insolvency Act with the assistance of a consumer proposal administrator. Informal debt settlements are arrangements made with the assistance of a debt settlement company or debt counsellor in return for a fee.

Debtor

 

A debtor is a person who receives a loan or an advance of goods and services in exchange for a promise to pay at a later date. If you go bankrupt, you are considered a debtor.

Deemed

Something that, as a result of some authoritative pronouncement (e.g. by law or by court order), should be taken as, considered as, presumed to be or understood to be something else. For example, the discharge of a LIT in a summary administration is deemed to occur although there is no order of discharge from the court; or, someone whose proposal under Part III Division I was rejected by the creditors is deemed to have made an assignment in bankruptcy, even though an assignment was not made.

Default

Failure to pay comply with a covenant or otherwise perform obligations under a contract; the occurrence of any event whereupon, under the terms of the contract (e.g. security agreement), the remedy rights under the contract become enforceable. When applied to a consumer proposal, failure to comply with the terms of the proposal constitutes a default.

 

Discharge

The process of law by which a person may be relieved of certain obligations, liabilities or responsibilities. For example, a bankrupt may be discharged when the Court, or the process under the BIA, acknowledges that he has fulfilled his obligations as a bankrupt and is relieved of further obligation to pay the dischargeable debts. As another example, a trustee may be discharged when the court, or the process under the BIA, acknowledges that he has completed the administration of an estate and becomes released of obligations and responsibilities in connection with administration of a bankrupt estate or a proposal.

Discharge From Bankruptcy

 

This is the final outcome of the bankruptcy process. A Certificate of Discharge is issued after the bankrupt completes all required duties and the bankruptcy period has finished. A bankruptcy discharge is a legal release from the requirement to pay debts as of the date of filing bankruptcy, with some exceptions. Bankruptcies can end in an automatic discharge (no court hearing required), an absolute discharge order, conditional discharge or suspended discharge (delay in your discharge date pending court requirements). This is dependent on how many times you have declared bankruptcy in the past, and if you have complied with your bankruptcy obligations.

 

Dividend

 

The amount a creditor receives out of the funds paid into a bankrupt’s estate or through a consumer proposal.

 

Division I Proposal

 

A formal offer to settle debts as of the date of filing between a debtor and creditors. Also called a commercial proposal, a Division I proposal can be filed by an individual and a corporation. In most cases an individual would only file a Division I proposal if their total debts, excluding the mortgage on their principal residence, are more than the $250,000 limit allowed in a consumer proposal.

Division I proposal 

An offering to creditors to extend the time to pay debts or compromise a person’s debts under Part III, Division I of the BIA. A proposal filed by a natural person whose debts, excluding those secured by the principal residence, exceed $250,000 and any other person as defined under the BIA can only be filed under Division I.

 

E

  

Encumbrance

 

A claim or liability that is attached to property or some other right that may lessen its value, e.g. a lien or mortgage.

 

Equity

 

The difference between the market value of an asset and the debt secured against it.

 

Exempt Assets

 

Assets defined as exempt by provincial legislation that are not available to the trustee for the benefit of creditors.

 

F

  

Family situation adjustment 

The adjustment to the surplus income based on the percentage of the individual’s available monthly income to the family unit’s available income.

 

Family unit 

 

 

Any person, in addition to the individual filing for bankruptcy, who lives in the same household and benefits from either the incurred or income earned by the bankrupt or who contributes to such expenses or income. A person not living in the same household is also considered as a member of the family unit if that person benefits from or contributes to the expenses incurred or income earned by the individual filing.

Family unit’s available monthly income 

The family unit’s total monthly income less non-discretionary expenses.

 

Family unit’s total monthly income 

The monthly income from all sources less statutory deductions, in the case of an employee, allowable business and statutory expenses in the case of a self-employed person, and income taxes or installment payments by a self-employed person or person with insufficient tax withheld at source.

First Meeting (of Creditors)

 

Meeting called by the trustee to consider the affairs of the individual in a Proposal, to affirm the appointment of the trustee, to appoint inspectors, and to give such directions to the trustee as the creditors may see fit.

 

G

  

Garnishment

 

A legal process whereby a creditor requires a third party to turn over to the creditor, the individual’s property such as wages or bank accounts. In most cases can only be accomplished with a garnishment order from a court of jurisdiction. An exception occurs when legislation provides for garnishment without a court order – e.g. Income tax Act, various provincial tax acts, family maintenance acts, etc.

General Security Agreement

 

A contract under which all the personal property of an individual who has filed is pledged as security to a lender; (not used in all provinces).

 

Guarantor

 

A person who takes on financial responsibility for another’s debt.

 

I

  

Insolvent Person

 

Under the BIA, an insolvent person is a person who is not bankrupt, resides or carries on business or has property in Canada, whose debts to creditors with claims provable under the BIA amount to $1,000, and

  1. Who for any reason is unable to meet his debt obligations when they become due, or
  2. Who has ceased paying his current obligations as they become due, or
  3. Whose total asset value, at fair market value, is insufficient to satisfy the total of all his obligations.

Inspector

 

Inspectors are appointed by creditors to represent them before the trustee during the administration of consumer proposals and bankruptcies. They are expected to assist the trustee by virtue of their experience and are required to supervise certain aspects of the trustee’s administration. It is very unusual for inspectors to be appointed in a personal bankruptcy or consumer proposal.

 

J

  

Joint assignment in bankruptcy/consumer proposal 

An assignment in bankruptcy or filing of a consumer proposal by two individuals where the debts can reasonably be dealt with together due to the nature of the assets, debts and relationship of the individuals. This option is only available for a summary administration bankruptcy or a consumer proposal. A joint filing must be in the interest of both the creditors and the debtors.

Joint Debt

 

A debt is ‘joint and several’ if more than one party is legally responsible for repayment of that debt. Spouses often co-sign mortgages or bank loans and these become joint debts. A joint debt can also be created by guaranteeing payment of some else’s debt.

Judgement

 

A formal decision issued by a court on a matter under its consideration.

 

L

Liabilities

 

Liability is another word for debt, or money that you owe to a creditor. Examples of liabilities would include credit card debts, bank loans, payday loans, student loans, unpaid bills, tax debts. Almost all unsecured debts are discharged in a bankruptcy or proposal to creditors.

Licensed Insolvency Trustee

 

A Licensed Insolvency Trustee (LIT) is a person licensed by the Superintendent of Bankruptcy to administer consumer proposals and personal bankruptcy processes. Previously known as a Bankruptcy Trustee. The trustee works with you, your creditors, and the Office of the Superintendent of Bankruptcy, and is an officer of the court. The trustee can give you information and advice about both the proposal and bankruptcy processes and make sure that your rights, as well as those of the creditors, are respected. 

Lien

 

A legal right that a creditor has in a debtor’s property. For example, Canada Revenue Agency has the ability to place a lien on your house if you have not paid your taxes, and the lien has the same impact as a mortgage. The lien is not discharged until you pay the lien, or sell the property and the proceeds from the sale of the property are used to pay the lien. Liens can also be used to freeze bank accounts.

M

  

Mediation

A process available to a first- or second-time bankruptcy to reach a settlement with an opposing party on an amount due for outstanding surplus income obligation or due to the fact that the bankrupt could have filed a viable proposal and thereby avoid the involvement of the Court.

N

  

Non-dischargeable debt 

A debt specifically listed under s.178 of the BIA which the individual cannot get relief from through the bankruptcy process based on over-riding social policy.

Non-discretionary expenses 

Specific expenses listed in Directive 11R2, the most common of which are child/maintenance support, spousal support, childcare, medical expenses.

O

  

Offences

 

The offences and sanctions provisions are contained in Part VIII of the Bankruptcy and Insolvency Act. These are criminal or quasi-criminal violations of law; a person guilty of an offence is liable to a fine or imprisonment.

Official Receiver

 

The Official Receiver is a federal government employee in the Office of the Superintendent of Bankruptcy and an officer of the court with specific duties under the Bankruptcy and Insolvency Act. The Official Receiver, among other things, accepts the documents that are filed in proposals to creditors and personal bankruptcy processes, examines bankrupts under oath and chairs meetings of creditors.

Orderly Payment of Debts

 

A procedure prescribed in Part X of the Bankruptcy and Insolvency Act, governed by provincial courts, which allows a person to pay debts. Only available in Alberta, Nova Scotia, Prince Edward Island and Quebec (where it is known as Voluntary Deposit Service / Lacombe’s Law). 

Ordinary Administration 

The process of administering a bankruptcy estate where the estimated realizable value of assets listed on the Statement of Affairs exceeds $15,000.

P

  

Preference

A payment or transfer of property made, a provision of services, a charge on property, an obligation incurred or a judicial proceeding taken or suffered by the individual, that benefits one or more of the creditors to the detriment of his other creditors. For creditors dealing at arm’s length, the critical time period is within the three (3) months prior to the date of the insolvency filing. For creditors not dealing at arm’s length (generally related parties) the critical time period is extended to twelve (12) months. In the absence of evidence to the contrary, such transactions are presumed to create a preference and are void as against a LIT which effectively undoes the transaction.

Preferred Creditor

 

A preferred creditor is paid in priority to regular unsecured creditors. In a business bankruptcy employees who are owed wages are preferred creditors and receive payments before regular unsecured creditors.

Property

Includes money, goods, land and every description of property, whether real or personal, situated in Canada or elsewhere.

Property claim 

A claim for return of the property of a third party in the possession of the bankrupt at the date of bankruptcy.

Property of the bankrupt 

anything owned by the individual at the date of bankruptcy or that may be acquired by or devolve upon the bankrupt prior to discharge, excluding those items specifically listed in s. 67 of the BIA.

Proposal

An offer to creditors to settle debts under conditions other than the existing terms. It is a formal agreement under the Bankruptcy and Insolvency Act.

Provable claim 

A debt or liability to which the individual is subject at the date of bankruptcy or to which the bankrupt becomes subject prior to their discharge relating to an obligation that incurred prior to the date of bankruptcy pursuant to s. 121(1) of the BIA. The purpose of the section is to ensure, as much as possible, that the individual can receive relief from every kind of claim (other than those listed in s. 178 of the BIA) on his discharge and be able to make a fresh start.

 

Q

  

Quorum

The number of members in a group required to be present (in person or by proxy) before business can be transacted. At a meeting of creditors under the BIA, a quorum is constituted by one creditor who has filed a provable claim with the trustee prior to the meeting and is entitled to vote.
 

R

  

Receiver

 

A person who has taken possession pursuant to a security agreement of substantially all of the inventory, accounts receivables or the other property of the debtor. “Receiver” also includes a person who has been appointed privately pursuant to a security agreement or by an order of the court for the protection or collection of property that is the subject of diverse claims, usually to seize and sell the property of the debtor. Registrar An Officer of a provincial court appointed by the Chief Justice with the powers and jurisdiction as specified under the Bankruptcy and Insolvency Act.

 

Refused discharge 

The court has the right to refuse a discharge, but will seldom exercise this power except in very unusual circumstances. These circumstances would usually relate to the conduct of the bankrupt, the number of prior bankruptcies filed by the individual and the reasons for those bankruptcies.

 

Registrar

 

An Officer of a provincial court appointed by the Chief Justice with the powers and jurisdiction as specified under the Bankruptcy and Insolvency Act.

 

S

  

S. 170 Report 

A common term for the Report of the Trustee on Bankrupt’s Application for discharge. This is a report prepared by the LIT pursuant to s. 170 of the BIA prior to the individual’s discharge which includes a report on the administration of the estate to the date of the report, the conduct of the individual during the bankruptcy period and a recommendation on the their eligibility for discharge.

 

Secured Creditor

 

A secured creditor holds security over any assets. A mortgage holder is a secured creditor because the mortgage is secured by your house. A car loan lender registers security over your car. If you don’t pay your mortgage or car loan, the secured creditor can seize the house or car.

 

Senior Bankruptcy Analyst 

A representative of the Superintendent of Bankruptcy designated to supervise the administration of estates and to perform other duties as specified by the OSB. May or may not be an Official Receiver.

 

Statement of Affairs 

Statement of an individuals assets, debts, income and expenses and personal information including financial conduct prior to the date of the statement. The statement is drawn up to indicate the amounts which may be expected to be realized if the property is sold and the manner in which the proceeds of such sale will be distributed, having regard for the interests of secured, preferred and unsecured creditors. The statement must be signed by the individual under oath when making a filing under the BIA.

 

Statement of receipts and disbursements 

A statement prepared by the LIT on the disposition of assets listed on the Statement of Affairs plus any other realizations in the estate. In the matter of a bankruptcy, there is generally one statement prepared at the end of the process prior to the distribution of assets to the creditors. In a proposal, an interim statement will be prepared with each distribution to proven creditors and a final statement at the time of the last distribution.

 

Stay of proceedings 

An interruption or suspension of legal action and collection activity by a creditor with a claim provable under the BIA.

 

Summary administration 

The more streamlined process of administering an assignment in bankruptcy by a natural person (an individual) where the estimated realizable value of assets does not exceed $15,000 at the date of bankruptcy.

 

Superintendent of Bankruptcy

 

The Superintendent of Bankruptcy is a federally appointed official who oversees the administration of the Bankruptcy and Insolvency Act in Canada. They are appointed by the Governor in Council to supervise the administration of all estates and matters to which the BIA.

 

Superintendent standards 

The standards derived by the OSB from the Low Income Cutoffs released by Statistics Canada and deemed necessary for basic living expenses. These standards vary for the family unit size and are adjusted annually based on the Consumer Price Index (CPI).

 

Surplus Income

 

The Office of the Superintendent of Bankruptcy sets limits on what a person or family requires to live. Any income over that limit is called “surplus income”, and during a bankruptcy, you are required to pay half of your surplus income to the trustee each month. The trustee sets the amount of payment by taking into account your total income, the standards issued by the Superintendent of Bankruptcy, and your personal and family situation. The Superintendent of Bankruptcy’s standards are set out in Directive #11. You must make all required surplus income payments to receive your discharge from bankruptcy.

 

Suspended and conditional discharge

The individual is required to make further payment and/or complete duties and due to other matters, usually conduct, a specific period of suspension is warranted. They will not receive an absolute discharge until both the conditions are met and the suspension period has expired.

 

T

  

Taxation (of Accounts) 

Application to the court to have certain costs of the LIT examined and approved by the court.

 

Transfer at undervalue 

A disposition of property/assets or the provision of services for which no consideration is received by the individual or for which the consideration received by the individual is conspicuously less than the fair market value of the property/asset/services.

 

U

  

Unsecured Creditor

 

An unsecured creditor does not hold security over any assets. Typical examples of unsecured creditors would be credit cards, payday loans, Canada Revenue Agency for taxes owed, and unsecured lines of credit.

 

W

  

Wage Garnishment

 

A garnishment is the ability of a creditor to seize a portion of your wages. Generally, a creditor requires a court order before they are able to obtain a garnishment. The only exceptions are Canada Revenue Agency, some loans from credit unions, and creditors for whom you have voluntarily agreed to allow them to garnish your wages. Most garnishments stop when you file bankruptcy or a consumer proposal.