Bankruptcy

Question 1

Explain the bankruptcy and insolvency act.

Answer 1

• a federal statute
• same across canada (hence, federal statute)
• minimum amount of debt you are unable to pay is $1,000

Question 2

What is insolvency?

Answer 2

• a financial condition
• you must be insolvent as a condition of bankruptcy but does not imply bankruptcy

Question 3

What makes/classifies someone as insolvent?

Answer 3

• unable to pay debts when they are due

Question 4

How can someone get out of insolvency?

Answer 4

• negotiate with creditors

Question 5

Does insolvent imply bankrupt?

Answer 5

NO! Insolvency is a pre-condition to bankruptcy

Question 6

What is bankruptcy?

Answer 6

• a LEGAL status

Question 7

What happens once someone is bankrupt?

Answer 7

• trustee takes over your assets
• goes through the rules and list of who gets paid in what order
• one bankruptcies can trigger other bankruptcies (people who lent more than they can afford to lose)

Question 8

What are the 2 main purposes of bankruptcy?

Answer 8

1. allow an honest but insolvent debtor a chance to start over with a clean financial slate
2. to allow for a fair and orderly distribution of the the debtors assets amongst the creditors

Question 9

Who or what decides the order for how people are paid back after a bankruptcy?

Answer 9

bankruptcy and insolvency act

Question 10

Who can become bankrupt?

Answer 10

people and corporations (because they are seen differently by the law/government)

Question 11

What are the 3 ways you become declared to be bankrupt?

Answer 11

1. insolvent person makes a “voluntary assignment in bankruptcy”
2. creditor(s) file a petition to obtain a “receiving order”
3. a formal “proposal” does not receive sufficient approval

Question 12

Explain voluntary assignment in bankruptcy.

Answer 12

• the individual initiates bankruptcy themselves and voluntarily
• make a detailed list of every dime they have
• most common way for people to become bankrupt
• they visit a trustee in bankruptcy and initiate bankruptcy

Question 13

Explain creditor(s) file a petition to obtain a “receiving order”.

Answer 13

• creditors initiate it
• petition = imitating document in court
• filed in manitoba court of king’s bench
• gets complicated fast
• need a certain % of debt owed to submit a petition to the court
• judge decides on if the person is bankrupt
• creditors must establish to the court that an act of bankruptcy has occurred

Question 14

Explain insufficient approval of a formal “proposal”.

Answer 14

• variation of voluntary bankruptcy
• trustee of bankruptcy will try tp give options to avoid declaring bankruptcy (formal proposal to creditors)
• if insufficient % of creditors agree to the proposal OR if you fail at ANY point to follow through with what is in the formal promise you automatically default to a voluntary assignment of bankruptcy

Question 15

Is it possible to be bankrupt more than once?

Answer 15

Yes! But the bankruptcy status lasts longer after the 1st one.

Question 16

What is the obligation of a trustee in bankruptcy?

Answer 16

satisfies claims of creditors in an orderly and fair way

Question 17

What are the powers and duties of the trustee in bankruptcy?

Answer 17

• recovery of property (transfers under value, fraudulent preferences, fraudulent transfer)

Question 18

Define transfers under fair value.

Answer 18

Disposing of some item (gifting or selling) under fair market value.

Question 19

Explain transfers under value AT ARMS LENGTH.

Answer 19

A transaction with someone the person is not related to or associated with and sell or gift the item for UNDER fair market value.

• trustee can go back within a year of bankruptcy

Question 20

Explain transfers under value NOT AT ARMS LENGTH.

Answer 20

The person who received the thing may not even be aware of what the person who sold or gifted was doing. People you are related to or involved with.

• trustee can go back within 5 years of bankruptcy

Question 21

Explain fraudulent preferences

Answer 21

• Also affected by transactions at arms length and NOT at arms length
• payment of money or transfer of property to a creditor with a view of preferring that creditor over other creditors
• at arms length: up to 3 months before bankruptcy
• NOT at arms length: up to 12 months before bankruptcy

Question 22

Explain fraudulent transfer

Answer 22

• transfer of property by a debtor with the intention of putting that property out of reach of creditors

Question 23

Do you lose everything when you file for bankruptcy?

Answer 23

No. You can keep core assets that are decided on a provincial level.

Question 24

What order are creditors paid in the event of a bankruptcy?

Answer 24

1. Super priority creditors
2. Secured creditors
3. Preferred creditors
4. Unsecured, or general, creditors

Question 25

Explain a super priority creditor

Answer 25

• not very common creditors
• unpaid sellers
• wage earners (from current assets only)

Question 26

What is an example of an unpaid seller?

Answer 26

someone sells goods to someone who becomes bankrupt within 30 days of the sale and they sell the goods on credit. If that item was bought for the purpose of the business of the buyer, the creditor must give swift notice and repossess the goods.

The persons KNOWS this is dirty because the bankruptcy process takes longer than 30 days

Question 27

What is an example of wage earners?

Answer 27

some wage earners who work for the party who becomes bankrupt. Bankruptcy and insolvency act says wage earners who have priority to be paid up to 6 months of a rears wage up to a max of $2,000. But they are only paid if there are current assets (aka cash or money in the bank).

Question 28

What are the 3 type of traditional creditors?

Answer 28

1. secured
2. preferred
3. unsecured or general

Question 29

Explain secured creditors.

Answer 29

• creditor has collateral security in the form of a recognized claim against specified assets of the debtor
• Whatever is not covered by the collateral (asset), the remaining amount the creditor is owed becomes an unsecured (general) creditor for
• only get paid back, don’t make more if the collateral is worth more
• more than one person can be secured by the same asset

Question 30

Explain preferred creditors.

Answer 30

• listed in the bankruptcy and insolvency act
• once the money runs out, too bad for the rest
• usually preferred creditors are paid, but not always

Question 31

What are 4 examples given in the text of preferred creditors?

Answer 31

1. if the person died, 1st preferred creditor is payment of REASONABLE legal fees associated with death and REASONABLE funeral expenses (judge decides what is reasonable)
2. trustee in bankruptcy is 2nd preferred creditor. Not always money to pay them in full, but rare. The trustee in bankruptcy knows what they will get paid beforehand because they have all the numbers in front of them
3. wage earner up to 6 months back is the 4th preferred creditor. What was NOT covered as a super priority creditor.
4. municipal taxes within 2 year preceding bankruptcy is the 6th preferred creditor
5. rent due to the landlord for a period of 3 months preceding bankruptcy is the 7th preferred creditor

Question 32

What are unsecured (general) creditors?

Answer 32

• the most unsafe and paid last
• there is very rarely enough money to pay them
• amount left is divided by the amount due to general creditors and that is how many cents on the dollar the unsecured creditors get