1(844) 616-2529

FAQ on Bankruptcy and Insolvency Terms

If you’ve done any research on bankruptcy and insolvency, either online or otherwise, you’ve likely come across some terms that you may not understand. Don’t worry, this is common. There are a number of terms that most people are unfamiliar with. If you’ve never gone through a bankruptcy or insolvency process, you likely won’t know a lot of these terms.

Here are a few common terms that you might come across and their meanings.


An asset is something that is owned by an individual (or company) that is regarded as having value.This could include cash in the bank, an auto, your home and stocks and bonds. In the case of bankruptcy and insolvency situations, an asset is any property, not encumbered by a loan, that is available for distribution to creditors.

  • Exempt Assets
    • Many people believe that all assets are lost when you file for bankruptcy. This is not true. When a person files for bankruptcy, all of his or her assets are not immediately sold or given to creditors.
    • Each province maintains a list of assets and the value of assets that are required for a person to live a basic lifestyle and to do work. These are classified as “exempt assets” and they are not lost in a bankruptcy.


Bankruptcy is a legal process that is designed to give an individual (in the case of personal bankruptcy) an opportunity to eliminate his or her unsecured debts. Contrary to popular belief, the goal of bankruptcy isn’t to punish a person who files. It is to eliminate debt after using any available assets to pay your creditors what you can afford. It gives a person a chance at a fresh financial start while also giving creditors what is rightfully owed to them.

The bankruptcy process can only be administered by a licensed insolvency trustee .

Bankruptcy and Insolvency Act (BIA)

The Bankruptcy and Insolvency Act of Canada is a federal act that governs bankruptcy and insolvency in Canada. It also governs the Office of the Superintendent of Bankruptcy, which is a federal agency that is responsible for ensuring that bankruptcies are handled in a fair manner.

Consumer Proposal

A consumer proposal is a legal process that is administered by a licensed insolvency trustee . However, unlike a bankruptcy, a consumer proposal is a process through which you make an offer to your creditors to repay them a portion of what is owed on terms that you can afford.

In most consumer proposals, a person offers to repay a portion of the debt that they owe in monthly payments over a specific period of time. Consumer proposals can last between one and five years. Once all of the agreed-upon payments are made, the remaining outstanding debt is eliminated.

Credit Counselling

Credit counselling is a service where trained counsellors work with people to help them understand their financial situation and assist them with budgeting, using credit responsibly and other debt management solutions.

A person who files for bankruptcy or consumer proposal is required to attend two counselling sessions. The goal of these sessions is to provide the individual with important information on budgeting and money management so that they are less likely to end up in financial trouble in the future.


A creditor is a person or organization to whom debt is owed.

  • Secured Creditor
    • A secured creditor holds a mortgage or lien on an asset. Examples of secured creditors are the bank (in the case of mortgages) and automobile loan lenders.
  • Unsecured Creditor
    • An unsecured creditor does not hold a mortgage or a lien against the debt. For instance, a credit card company is an example of an unsecured creditor, as is your utility bill and department store credit card..

Debt Consolidation

Debt consolidation is the process of combining various debts. Typically, the goal of this process is to reduce the amount of interest that is paid. For example, if a person owes money on three credit cards with interest rates of 10%, 15% and 20%, transferring the debt to the card with the 10% interest rate would result in savings.

In some cases, a person will take out a separate loan with a lower rate than the overall interest rate on the current debt in order to save money on interest.


If a person is unable to pay their debts as they become due, or if a person has more debts than they have assets, this person is considered insolvent.

Surplus Income

When you file for bankruptcy, the cost of your bankruptcy depends on several factors, including your income. The government sets limits for how much a person can earn while bankrupt. These limits are based on family size. If you earn more than the limit for your family size, you will need to make surplus income payments to your trustee who distributes them to your creditors.

Licensed Insolvency Trustee

A licensed insolvency trustee is a person who is licensed and trained and is registered by the federal government to handle bankruptcy and insolvency situations and administer consumer proposals and bankruptcies.