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Licensed Insolvency & Bankruptcy Trustee

Insolvency Explained – Everything You Need to Know About Insolvency

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Even though most people use the terms “insolvency” and “bankruptcy” interchangeably, the truth is that they have different meanings. Insolvency is a financial situation when a person cannot meet their financial obligations on time. This usually happens when a person’s debts are greater than the value of their assets. Simply put, a person becomes insolvent when they are unable to repay their debts in a timely manner.

Bankruptcy is a legal process that helps people who struggle with debt overcome their financial problems.

Insolvency is a financial state that can lead to bankruptcy, but bankruptcy is not the only solution to insolvency. Insolvent people can find other solutions to their financial problems, such as consolidating their debt, filing a consumer proposal, and more.

Read on to find out what insolvency is, the differences between insolvency and bankruptcy, and what the different solutions for insolvency are.

The Definition of Insolvency

The Bankruptcy and Insolvency Act (BIA) mentions that an insolvent person is someone who resides, does business or has property in Canada, is not bankrupt, but whose liabilities to creditors amount to 1,000 dollars and

  • the insolvent person is not able to meet their financial obligations as they become due,
  • they have ceased paying their financial obligations in the ordinary course of business when the obligations become due, or
  • is an individual whose property, at a fair evaluation, is not sufficient to enable payment of all their financial obligations

What Does it Mean to be Insolvent?

Being insolvent means that you either are unable to meet your financial obligations or that your debts are greater than your assets.

There are two ways to find out if you are insolvent:

  • If the minimum payment towards your debt is due on a certain date, say the 15th of the month, and you don’t have the money to pay them when they become due
  • If your assets cannot cover your debts. For example, if your only asset is a car that’s worth $10,000 and has no loan against it, but you owe $18,000, you are insolvent because selling your asset will not enable you to repay what you owe.

It’s possible to be unable to make your monthly payments, but to owe assets that are more valuable than your debt. If this is the case, you are not insolvent because selling your assets can pay off your debt.

The Difference Between Insolvency and Bankruptcy

Insolvency and bankruptcy are not the same thing. Insolvency is a financial state when an individual cannot meet their financial obligations, whereas bankruptcy is a legal procedure that allows honest debtors to be discharged from the obligation to repay their debts.

How to Find out If You’re Insolvent

If you can’t meet your monthly financial obligations or if the value of your assets does not exceed the value of your debts, you may be insolvent. If you believe you may be insolvent and want to overcome your debts, you can contact our Licensed Insolvency Trustees and schedule a free consultation.

During the consultation, our trustee will review your debts, income, and assets to determine whether you are insolvent or not. The trustee will then explain all the options that could help you deal with your debts.

Consequences of Insolvency

Insolvency can have unpleasant consequences. Since you are unable to meet your financial obligations, your wages may be garnished and you may become the target of aggressive debt collection tactics, such as harassing calls.

However, our Licensed Insolvency Trustees can help you address your insolvency and get out of debt.

Solutions for Insolvency

There are several solutions for insolvency.

Personal budgeting

You may be able to repay your debts if you become better at managing your money. Personal budgeting is a relatively simple financial recovery solution because it doesn’t involve selling your assets and it doesn’t affect your credit score. With dedication and discipline, you can lower your monthly expenses so you can repay your debts.

Debt consolidation

Debt consolidation means bringing together multiple debts under a single payment. This solution can help you repay your debt because it can significantly lower the interest rate on your debt and extend its due date.

Consumer proposal

A consumer proposal is a legal agreement that can reduce the amount you owe. This agreement between you and your creditors can reduce your debt by up to 75%. Filing a consumer proposal can settle all your unsecured debts, including those toward the CRA.

Bankruptcy

Sometimes, bankruptcy is the best solution to eliminate debt. Filing bankruptcy can eliminate all your unsecured debt, such as credit card debt, CRA debt, or student loan debt.

Explore Your Options

Being insolvent can be unpleasant, but there are solutions out there that can help you get out of debt. And we can help you with that.

The Role of an Insolvency Trustee

Licensed Insolvency Trustees (LITs) are financial specialists who are licensed by the federal Office of the Superintendent of Bankruptcy (OSB) to advise the general public on debt-related topics and who can administer insolvency processes.

The role of an insolvency trustee is to help you find suitable debt relief options so you can get out of debt. Insolvency trustees also help resolve any problems that may arise between you and your creditors. They are the only professionals legally allowed to administer insolvency processes like customer proposals or bankruptcies in Canada.

Worried that you may be insolvent? Regain your financial freedom.

Book a free, confidential, no-obligation consultation and discover how you can repay your debt. Our Licensed Insolvency Trustees can help you deal with your debt problems.

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