What Does Bankruptcy Mean?
Bankruptcy is when one legally declares they cannot pay back their debt to the creditors. In other words, the individual does not have the money to pay back their debt and therefore has to declare bankruptcy to remove their name from the debt. Bankruptcy is often introduced by the debtor and imposed by a court order.
Bankruptcy In Canada
In Canada, bankruptcy is also referred to as insolvency (meaning unable to pay debt) and is governed by the Bankruptcy and Insolvency Act for individuals and businesses. An individual/business must have at least $1000 in debt to file for bankruptcy.
In Canada, there is something called a consumer proposal. A consumer proposal is something other than bankruptcy and allows the debtor (person owing) to negotiate a deal with the creditor (person owed to). The creditor has 45 days to accept the proposal. In most cases it’s accepted because the other option is for the debtor to go through personal bankruptcy which may mean the creditor will receive even less money back. A consumer proposal may only be made by a debtor with a debt of maximum $250,000. If debts are greater than $250,000, the proposal must go through a different process of filing.
Bankruptcy In The United States
Bankruptcy in the United States is governed by federal jurisdiction under the Bankruptcy Code, Title 11 in the United States Code. Bankruptcy cases are usually filed in the United States Bankruptcy Court however each individual case is also examined under State law, which may differ by state. There are different Chapters of Bankruptcy, the most common types for personal bankruptcy are Chapter 7 and 13.
Chapter 7 governs the process of liquidation under the bankruptcy laws of the United States. Liquidation is the disposal of assets held by the debtor in the attempt to pay off the debt, some property or assets may be exempt (exception) from being liquidated.
Chapter 13 governs the reorganization of the debtor in bankruptcy.
How Long Does Bankruptcy Last?
In the United States Chapter 7 bankruptcy stays on your credit report for 10 years and Chapter 13 bankruptcy stays for 7 years. In Canada, bankruptcy stays on your credit report for 6 years from the date of discharge.