The term “bankruptcy” refers to the state of a French company that can no longer pay its debts.
The concept of business bankruptcy is linked to the concepts of assets and liabilities. The billing software Debitoor you can record your expenses and purchases that go into the assets of your business.
Several concepts are included in this state of “bankruptcy”: cessation of payments, bankruptcy, liquidation, receivership, bankruptcy, over-indebtedness etc. Explanations.
Characteristics of bankruptcy
A company is said to be bankrupt when its liabilities exceed its assets, in other words when the available assets are not sufficient to cover the current liabilities . She is then no longer able to pay her debts.
The expression “bankrupt” still exists in everyday language, but the exact term today is “cessation of payments”.
It is up to the commercial court to declare that a company is bankrupt. This observation can result from several situations. For example, when the business manager files for bankruptcy and declares that the business is in default.
What to do in bankruptcy
Company managers have a period of 45 days between the time when the state of cessation of payment is noted, and its declaration to the Commercial Court.
This declaration must be made either at the registry of the commercial court, or at the registry of the tribunal de grande instance, depending on whether one is a commercial enterprise type SARL or an organization type association.
This declaration precedes either:
A bankruptcy procedure :
In this case, the company’s assets are examined. The company’s liabilities and assets are also valued. The objective being to rectify the situation of the company.
Following this period, the business can be declared viable, and see its debts spread. In the event that the business is not viable, it can either be taken over by a buyer, or not taken over because no buyer is interested, and then go into liquidation.
A judicial liquidation procedure :
In the event of compulsory liquidation, the company’s assets are sold, and an attempt is made to pay the company’s debts. The objective is to close the activity of the company, by settling its debts.
This procedure can take time, and last several months or years.
The company which is in the process of liquidation must produce a declaration of result within 60 days from the date of closure of the liquidation, and send it to the tax authorities.
Other useful terms
There are several synonyms or terms close to “bankruptcy”, here are a few:
- Bankruptcy: Bankruptcy is a criminal offense, which can be punished by law. We speak of bankruptcy when the manager of the company has, for example, embezzled money belonging to the company, or else, has not kept a faithful and complete accounting. The bankruptcy judgment is generally found during judicial reorganization procedures.
- Insolvency: we talk about an insolvent company when it can no longer pay its debts. This state may lead to bankruptcy.
- Bankruptcyfiling: bankruptcy filing is the old term used for what is now called “the declaration of cessation of payments”.
- Personal bankruptcy: this is a decision made by the court against a company director who has, for example, committed a serious fault.
Conditions for personal bankruptcy
To file for bankruptcy, a person must be insolvent , that is, they must:
- have debts of $ 1,000 or more;
- reside or own property in Canada;
- not already be in bankruptcy; and
- be in one of the following situations:
- she is unable, for one reason or another, to pay her debts on the scheduled date; or
- she has stopped paying her debts or her current bills (electricity, telecommunications, credit card balances, etc.); or
- the value of all of its assets (its assets) is less than the value of all of its debts (its liabilities).
If you are in such a situation, you can make an appointment with a licensed insolvency trustee (a bankruptcy trustee) to find out if bankruptcy is a good fit for you.
The role of the trustee
The trustee manages your bankruptcy. As part of his duties, the trustee:
- meets with you, analyzes your financial situation and makes recommendations to you;
- refers you to other solutionsif they are more suitable for you, such as a consumer proposal or voluntary deposit ;
- determines with you the assets that you will have to hand over to repay your debts and those that you will be able to keep.
If you have problems with your trustee, you can contact the Office of the Superintendent of Bankruptcy Canada . It is this body which gives it its license and which has the power to supervise and supervise it.
Debts Entering and Not Going Bankrupt
Most debts can go into bankruptcy. These may include, among others:
- unpaid balances on credit cards;
- debts on lines of credit;
- personal loans;
- tax debts;
- debts to collection agencies;
- student loans, under certain conditions.
However, some debts cannot be included in bankruptcy. This means that creditors could claim the money you owe them despite your bankruptcy. These are debts:
- that result from alimony;
- that arise from a fine, penalty, restitution order or other similar penalty imposed by a court;
- resulting from a civil liability trial for sexual assault, assault causing bodily harm or causing death;
- which originate from fraud, false statements or illegal acts;
- related to the money that a creditor could not get because you did not reveal its existence to the trustee;
- related to a student loan, if you have stopped attending school for less than 7 years. A judge may, exceptionally, reduce this period to 5 years if he is convinced that you have made efforts to pay and that you will not be able to do so in the future.
The main stages of bankruptcy
In order to familiarize you more with the personal bankruptcy process, here is an explanation of its main steps.
There are two consultation meetings that you must attend. They are offered by the trustee or an authorized advisor.
- During the first meeting, you will receive advice on the use of a budget, the first signs of insolvency and the use of credit.
- During the second meeting, you will receive help to understand the causes of your over-indebtedness and recommendations on possible solutions according to your situation.
You must attend these two meetings to be entitled to automatic discharge at the end of the bankruptcy process (see below).
With the help of the trustee, you need to take stock of your debts and a list of your assets. You must also complete a form to assign your property to the trustee and initiate the bankruptcy process. The trustee then takes care of filing the necessary documents with the official receiver.
This step corresponds to the date of your bankruptcy (“day 1”, the opening of your bankruptcy). From this point on, your creditors can generally no longer sue you for reimbursement.
The delivery and sale of goods
The trustee uses the list of your assets to determine with you which ones will be sold to reimburse your creditors. Some of your property is protected by law, however, which means it cannot be seized or sold.
In particular, you can keep:
- your RRIFs and RRSPs, except the amounts that were paid there less than 12 months before bankruptcy (exceptions apply);
- up to $ 7,000 of items that are used for your basic needs and those of your family and that are in your main residence (or other personal items if the value of these items does not reach $ 7,000). These objects will not be protected if there is a mortgage on them;
- food, fuel, linen and clothing for your life and that of your family;
- work tools necessary for your profession or trade (such as a toolbox, a computer, or even a car), unless there is a mortgage on them;
- a portion of your salary determined by law.
The trustee then proceeds to sell the unprotected property. The amounts of money from this sale will be distributed to your creditors in the order provided by law.
It is also possible that part of your salary is seized to pay your creditors.
The creditors’ meeting
The trustee must communicate with your creditors. In some cases, it will organize a meeting of creditors. During this meeting, they can in particular establish the manner in which the amounts obtained from the sale of your property will be managed.
The last step in the bankruptcy process is to get yourself out of debt. Being discharged means that the debts included in your bankruptcy are erased, since all the steps have been respected and completed. This release can be done automatically or by going to court.
The automatic discharge of your debts is generally done 9 months or 21 months after the date of your bankruptcy.
To be eligible, you must:
- be it your first bankruptcy;
- that the creditors, the trustee and the superintendent do not oppose your release; and
- that you have participated in the consultation meetings provided for by law.
Automatic discharge is also possible if it is your second bankruptcy, but you will then have to wait 24 months or 36 months after the date of your bankruptcy.
When you are not entitled to automatic release, you must obtain your release by going to court . After assessing your conduct, the court can decide:
- to immediately free yourself from all of your debts, except those that cannot be included in bankruptcy;
- to release you, but after a delay it determines;
- to free yourself, but only if you respect the conditions it imposes on you;
- not to free yourself in some rarer cases.
A note to the effect that you have declared bankruptcy will be placed in your credit report . She will stay there for 6 to 7 years after your release date.
In the event of a second bankruptcy, this period could extend up to 14 years.