bankruptcy process

The Bankruptcy Process

Bankruptcy cases can be involuntary or voluntary. The creditor petitions the bankruptcy court in a voluntary bankruptcy case. In a voluntary bankruptcy case, the debtor files the petition. District courts may refer bankruptcy cases to the Bankruptcy Court. Trustees are appointed by the Attorney General for the 21 geographical regions across Canada

An automatic stay will be imposed when one files for either peronal bankruptcy or business bankruptcy. It prevents the enforcement, commencement, or appeal of judgments and actions against you for the collection of claims that arose before the filing of bankruptcy. This order also forbids any collection proceedings and actions toward your properties. 

Secured creditors may be permitted to get the applicable collateral only if the courts permit it. If they failed to get permission, the court should give sufficient protection to the creditor that the collateral’s value won’t decrease during the automatic stay.

bankruptcy filling

Bankruptcy Code Chapters

There are 7 kinds of bankruptcy cases that can be filed. These are the following:

1. Chapter 7

Chapter 7 is also known as Liquidation. A trustee collects the debtor’s non-exempt assets, sells it, and dispenses the proceeds to the lenders. The debtor retains exempt assets. Most chapter 7 bankruptcy cases have little to no non-exempt assets, so the debtor’s assets may not be liquidated. These cases are known as non-asset situations.
Creditors holding unsecured claims will receive a distribution only if it’s an asset case & they then file a proof-of-claim with the local court. An individual debtor gets a discharge that frees them from their personal liability for dischargeable debts. To qualify for this kind of bankruptcy, the debtor should pass a means test. If his income is higher than a certain amount, they may not be qualified for Chapter 7.

2. Chapter 9

Chapter 9 is applicable only to municipalities such as towns and cities, taxing and school districts, counties, villages, and municipal utilities. They can re-write or reorganize collective bargaining agreements, allowing them to renegotiate benefits or pension packages that are unsustainable.

3. Chapters 11, 12 and 13

Chapter 11, 12, and 13 bankruptcy allows debtors to keep some or all of their properties and use future income to re-pay some creditors.  Chapter 11 is used by commercial businesses that wish to continue their company and payback creditors concurrently via a reorganization plan approved by the court. Debtors have the right to file a type of re-organizational plan after filing of the case, within the first 120 days. They should supply a disclosure statement to creditors that contain information enough to allow creditors to assess the plan. 

The court disapproves or approves the reorganization plan. The debtor repays some of his obligations and is freed from any remaining debt. They may also be able to terminate their lease and potential contracts, rescale their operations and recover assets to resume profitability. They usually go through a consolidation period and emerge with a reorganized business and reduced debt load. 

Chapter 12 is designed for fishermen and family farmers with regular earnings. Chapter 13 provides debt relief to individual debtors with regular income. The process under Chapters 12 and 13 are similar. 

To learn more about the bankruptcy process, just give us a call! We will help you determine which kind of bankruptcy suits you.