Ontario Insolvency Definitions

Automatic Discharge:
First-time bankrupts can receive a discharge as soon as nine months after they became bankrupt unless it is opposed by either a creditor, the trustee or the Superintendent of Bankruptcy or there is excess income above a certain amount. More..

Bankrupt:
A person who has made an assignment or against whom a receiving order has been made, or the legal status of that person.

Consumer Proposal:
A simplified form of Proposal available to debtors owing consumer debt of less than $250,000.00, excluding a mortgage on the principal residence.

Counselling:
Individuals are required to take counselling from trustees or administrators when they file for bankruptcy or make consumer proposals. If they do not take counselling they will not be discharged from bankruptcy or have their consumer proposal satisfied.

Credit Rating:
Credit reporting agencies collect information about consumers' financial affairs and sell this information to their clients. Credit ratings are set by creditors who pass this information to the reporting agencies. It consists of 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.

Discharge:
To cancel or relieve a person of an obligation or responsibility.

Discharge of Bankrupt: The discharge of a bankrupt depends on whether it is a first time bankruptcy, what the excess income is and if there is a significant amount of personal income tax owing. More..

Equity:
This refers to the excess that the value of a piece of property has over any charges or encumbrances against that piece of property.

Ethics:
Trustees in Bankruptcy are subject to the Codes of Ethics under:

CAIRP, The Canadian Association of Insolvency and Restructuring Professionals;
The Bankruptcy and Insolvency Act;
The Canadian Institure of Chartered Accountants, and where applicable;
The CGA Association.

Garnishee:
The seizure of property, monies, earnings, receivables belonging to a debtor that are in the hands of a third party.

Insolvent Person:
A person who is not bankrupt and whose liabilities exceed his assets and/or ability to pay.

The BIA contains a statutory definition that differs from this general definition as follows: "means a person who is not bankrupt and who resides or carries on business in Canada whose liabilities to creditors provable as claims under the Bankruptcy and Insolvency Act amount to at least $1,000.00 and

(a) who is, for any reason, unable to meet his obligations as they generally become due, or
(b) who has ceased paying his current obligations in the ordinary course of business as they generally become due, or
(c) the aggregate of whose property is not, at a fair valuation, sufficient or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to enable payment of all his obligations, due and accruing due."

Preference or Preferred Creditors:
Those creditors, in the Bankruptcy and Insolvency Act specified in Section 136, that rank ahead of ordinary or unsecured creditors. Some preferred creditors are employees for wages, and a landlord for some specified rental arrears.

Proof of Claim:
A prescribed form that will be sent along with the notice of bankruptcy or notice of proposal. Creditors are required to fill out and return this form to the trustee, or to the administrator of the consumer proposal, in order to prove their claim. If a meeting of creditors is called, those creditors wishing to vote at the meeting must file their proof of claim with the trustee before the time set for the opening of the meeting.

Proposal:
Under the Bankruptcy and Insolvency Act there are two types of proposals that can be made. A proposal filed under Division I, which is applicable to companies and any individual who wants to avail himself of it. There are also "consumer proposals", which are a special type of proposal that a consumer can avail himself of but only if his debts, excluding mortgages on real property, do not exceed $250,000. One of the main features of a consumer proposal is that if the creditors do not accept the proposal, the person is not automatically bankrupt as in a Division I proposal.

Remuneration of Trustee:
In estates under summary administration and in consumer proposals the trustee's, or administrator's, fees and expenses are set by the Bankruptcy and Insolvency Rules.

Secured:
The status a creditor has when he has security or a right in some property that he can sell or realize on.

Surplus Income:
Payments required, if any, to be made by a bankrupt to the trustee for distribution to creditors. The amount of the payment is fixed by the trustee, at the beginning of the bankruptcy, having regard to the standards established by the Superintendent and to the personal and family situation of the bankrupt. This amount is subject to change if there are material changes in the personal or family situation of the bankrupt, or if the official receiver so recommends. More..

Trustee:
The person under the Bankruptcy and Insolvency Act who administers bankruptcy and proposal estates.

Unsecured Creditors:
Creditors who do not have any security for the debt owing to them.