Resources for Creditors
- About bankruptcy
- Wage Earner Protection Program
- Proof of Claim form
- Meeting of creditors
- Preferential treatment or transfers at below market value
- Recovering what you're owed
- Closing the bankruptcy
- Complaints and appeals
Bankruptcy is a process governed by the Bankruptcy and Insolvency Act (BIA). Any insolvent person who has no other way to meet his or her financial obligations may file for bankruptcy, unless they have not been discharged from a previous bankruptcy.
In a bankruptcy, people or companies ("debtor") who can no longer pay their debts give all of their non-exempt property to a trustee in bankruptcy who then sells it and distributes the money to creditors. Bankruptcy can be voluntary or forced by a creditor through the Courts.
Roughly 90 percent of bankruptcies in Canada are consumer bankruptcies where the business-related debts make up less than 50 percent of the bankrupt's total debts.
When the bankrupt's realizable assets do not exceed $15,000, the bankruptcy is processed under summary administration. Almost all consumer bankruptcies are processed this way.
Bankruptcies processed as summary administrations are simpler; for example, they don't require a meeting of creditors. If your debtor's bankruptcy is to be handled as a summary administration, you'll find a notation saying so near the top of the documents you receive.
As soon as the debtor is declared bankrupt, creditors can no longer launch or continue legal proceedings against the debtor without the Court's permission.
If you are a secured creditor, however, you can take possession of your security unless the Court, under certain conditions, orders otherwise. For example, a bank holding a security on a car may take possession of the car and sell it even if the debtor has declared bankruptcy.top of page
Wage Earner Protection Program
If you are an employee legally entitled to work in Canada, you have certain protections under the Wage Earner Protection Program (WEPP) concerning payment of your wages, vacation, severance and termination pay if your employer becomes bankrupt (or becomes subject to a receivership) under the Bankruptcy and Insolvency Act.
For additional information about the program, refer to the following websites:top of page
Proof of Claim form
After a bankruptcy has been filed, the trustee will send you a notice of bankruptcy as well as a list of creditors and the amounts of their claims.
The trustee will also send a Proof of Claim form. You must fill out this form to share in the dividends and vote at the first meeting of creditors (if one is held). The form contains the name of the creditor and the bankrupt and the nature and amount of the claim, as well as other information. A list of instructions is usually included. You must attach a Statement of Account providing the details of the claim along with supporting documents or other evidence that establishes the validity of your claim.
If you are an unsecured creditor and you want to vote at the first meeting of creditors, you must file your completed form with the trustee before the meeting of creditors. Before the first meeting of creditors, the trustee will examine the Proof of Claim and decide whether your claim, in whole or in part, is accepted or disallowed. If your Proof of Claim is disallowed, you have 30 days to appeal the decision to the Court.
If you are a secured creditor, you don't have to fill out a Proof of Claim form unless the trustee asks you to or if you want to vote at the meeting of creditors and obtain a dividend for the unsecured portion of your claim.
If you want to vote at a meeting of creditors but are unable to attend, you may appoint another person to vote on your behalf. To do this, fill out a proxy form and return it to the trustee along with your Proof of Claim, or give the form to your proxy to present to the chairperson of the meeting at any time before the vote is taken.top of page
Meeting of creditors
Within five days after his or her appointment, the trustee must send (1) a notice of the bankruptcy and (2) a notice of the first meeting of creditors (if one is held) to three parties: the bankrupt, any known creditors and the Office of the Superintendent of Bankruptcy (OSB).
If the bankruptcy is being dealt with as a summary administration, a meeting of creditors is not mandatory. Such a meeting will be held only at the request of creditors who hold at least 25 percent of the value of the proven claims, or at the request of the OSB.
The trustee may call a meeting of creditors any time during the administration of a bankruptcy and must do so when directed by the Court or when requested in writing by 25 percent of the creditors holding 25 percent of the value of the proven claims.
At the first meeting of creditors, you will be able to
- examine the affairs of the bankrupt by asking questions of the trustee and the bankrupt;
- review the OSB's report;
- review the trustee's preliminary report;
- confirm the trustee's appointment or replace him or her;
- instruct the trustee on the administration of the estate; and
- appoint inspectors.
Inspectors are appointed to provide the trustee with direction and the authority to take certain actions. (The Inspectors' Handbook provides more information about the role of inspectors.)
If you have already filed your Proof of Claim, you may
- examine the Proofs of Claim, of the other creditors;
- vote on a resolution (unless you are related to the bankrupt);
- ask the trustee to examine any person regarding the affairs of the bankrupt; or
- require the production of books or documents relating to the bankrupt's dealings.
Preferential treatment or transfers at below market value
A transaction can be set aside if, in the three months prior to the date of the initial bankruptcy event, the debtor made a payment to one creditor that favoured the creditor over others. (If the creditor is not at arm's length from the debtor — such as a family member — the period extends to 12 months preceding the date of the initial bankruptcy.)
If the Court finds that the debtor made a transfer at below market value to a person who is not at arm's length from the debtor, the Court may set aside the transaction. If the transaction occurred within 12 months of the initial bankruptcy event, the Court can also order the debtor to pay to the trustee the difference between the transfer value and the fair market value. If the transaction took place with a person who is at arm's length from the debtor, the debtor must have been insolvent at the time of the transfer and intended to defraud a creditor.
If you have reasonable grounds to believe that the bankrupt or someone else is guilty of an offence under the BIA or any other statute, you should contact the trustee or the Office of the Superintendent of Bankruptcy.top of page
Recovering what you're owed
To help creditors recover some of what they are owed, non-exempt property owned by the bankrupt as of the date of the bankruptcy, or acquired prior to the bankruptcy discharge, may be seized and sold by the trustee. Exempt property includes property protected by applicable provincial and federal laws (such as basic furniture or tools-of-trade), property held by the bankrupt in trust for another and, in some cases, goods and services tax (GST) payments.
In addition, the trustee determines the bankrupt's "surplus" income, i.e., the amount beyond what the bankrupt requires to maintain a reasonable standard of living. The bankrupt must pay this amount to the estate for distribution to the creditors after the costs of administration are deducted.
After the trustee has sold all of the bankrupt's property, he or she must prepare a final statement of receipts and disbursements and a dividend sheet. The dividend sheet contains a list of creditors who will receive dividends and the amount to which they are entitled. You will be paid the dividends to which you are entitled before the bankruptcy file is closed, which is before the discharge of the trustee.
The dividends are distributed in the order set out in section 136 of the Bankruptcy and Insolvency Act (BIA) :
- Secured claims.
- Funeral fees.
- The costs of administration, including the fees and disbursements of the trustee and legal costs.
- A levy on the dividends of secured, preferred and unsecured creditors to defray the expenses of the supervision by the Office of the Superintendent of Bankruptcy.
- Claims of "preferred" creditors such as wages, salaries, commissions or compensation of employees of the bankrupt (unless the employee is related to the bankrupt — see below).
- Under certain circumstances, debts or obligations of support to a spouse or common-law partner or child living separate from a debtor.
These prior claims are subject to certain conditions and this list is not exhaustive.
The law gives priority to the claims of preferred creditors (e.g., numbers 5 and 6 above) over those of other unsecured creditors.
The claims of ordinary creditors, i.e., creditors who are not secured creditors and don't have priority under section 136 of the BIA, are satisfied on a pro-rata basis: after all secured and preferred creditors have been paid in full, ordinary creditors divide the remaining funds among themselves in proportion to how much each is owed.
The claims of relatives of the bankrupt are treated differently. For example, if you are the spouse of a bankrupt who owes you wages, you are considered a "deferred" creditor and will not receive a dividend until all preferred claims and all ordinary claims have been satisfied.
However, if you are the mother, father, child, sister, brother, aunt or uncle of a bankrupt who owes you wages, you will be considered an ordinary creditor. This means you will be paid after preferred creditors but before deferred creditors.top of page
Closing the bankruptcy
Under certain circumstances, the process for discharging the bankrupt begins with the trustee issuing a report on the bankrupt's application for discharge. The report must analyze:
- the affairs of the bankrupt;
- the causes of the bankruptcy;
- the manner in which the bankrupt has performed his or her duties;
- the bankrupt's conduct before and during the bankruptcy;
- whether the bankrupt has been convicted of any offence under the Bankruptcy and Insolvency Act (sections 198–208); and
- any other fact that would justify the Court's refusal of the discharge.
The main effect of discharge is to release the bankrupt from all non-exempt debts. Such debts include orders to compensate an assault victim, Court-ordered fines, claims by a former spouse or common-law partner for child support or alimony and student loans
A discharged bankrupt can once again get credit, purchase property and sign contracts.
A debtor whose discharge is not opposed by the Office of the Superintendent of Bankruptcy (OSB), the trustee or a creditor and who has not refused or neglected to receive counselling, is automatically discharged after 9, 21, 24 or 36 months, depending on whether it is a first or second bankruptcy. The discharge also depends on whether or not the bankrupt is required to pay a portion of his or her surplus income into the bankruptcy estate per the standard established by the OSB.
As a creditor, you have the right to oppose the discharge of a bankrupt. If you oppose the discharge on grounds other than those mentioned in the trustee's report, you must notify the trustee and the bankrupt of your opposition and grounds. In that event, the bankrupt will not be discharged automatically and the grounds for the opposition will be heard by the Court.
A creditor who opposes the discharge of the bankrupt must prove the facts on which his or her opposition is based. In other words, it is not enough simply to allege the reasons for the opposition; the creditor must also give the Court evidence in support of these arguments.
If it is not the debtor's first or second bankruptcy, or if a creditor, trustee or the OSB is opposing the discharge, the trustee must apply to the Court for a hearing about the bankrupt's discharge. The Court may grant or refuse an absolute order of discharge, suspend the operation of the order for a specified time or grant a discharge under certain conditions (a conditional discharge).
If a bankrupt is not discharged, creditors can take action to recover any debts from the bankrupt after the trustee is discharged.
The process of closing the administration of a bankruptcy begins when the trustee delivers a dividend sheet and final statement of receipts and disbursements to the OSB.
Trustees are entitled to remuneration for administering the bankruptcy. Trustee's fees and expenses depend on whether the administration is summary or ordinary. Section 128 of the Justice Canada websiteBankruptcy and Insolvency General Rules explains how a trustee's fees and expenses are established for services provided in summary administrations processed as bankruptcies.
In an ordinary bankruptcy, the trustee's fees may be decided by ordinary resolution at any meeting of creditors. In ordinary administrations, the trustee's fees are taxed (reviewed) by the Court.
If no objection is filed, or after the Court has dealt with all of the disagreements contained in the objections, the trustee distributes a final dividend to creditors who have proven their claims.
If a trustee is unable to deliver a dividend (for example, if he or she is unable to locate the rightful creditor when the dividends are distributed), he or she is required to forward the unclaimed funds to the OSB. The money is then held in trust until the creditor comes forward to make a claim.
The unclaimed funds database is a listing of creditors who are owed dividends but who could not be located by the trustee. You can find out whether you have an unclaimed dividend owing to you by searching the database.top of page
Complaints and appeals
If you feel the bankruptcy process was poorly managed or believe you have suffered a prejudice, please contact the Office of the Superintendent of Bankruptcy (OSB) at
1-877-376-9902 (toll free). The OSB keeps records of all complaints and can investigate any complaint from a creditor or other person.
You may appeal (within the period specified by the Court) any act or decision of the trustee if you believe you have been wronged. The Court may confirm, reverse or modify the act or decision.
Improper transaction or preferential treatment
You may also inform the trustee or inspectors of any improper transaction or preferential treatment shown by the bankrupt that was detrimental to your interests and those of other creditors. For example, if you become aware of assets that the bankrupt failed to declare.
More flexible, speedier and less costly than Court settlements, mediation enables people affected by a bankruptcy to participate directly in deciding how their disputes will be settled.
Mediation is available to resolve two kinds of disputes:
(1) disagreements over the amount of money (known as surplus income) that the bankrupt is required to pay to the trustee during the bankruptcy for the benefit of creditors; or
(2) the bankrupt failed to make surplus income payments or could have made a viable proposal but chose bankruptcy rather than propose a solution, when a viable proposal to deal with the debt could have been made.
For more information about mediation, consult All about Bankruptcy Mediation.