What is Bankruptcy Protection?
Canadian companies don’t actually file for “bankruptcy protection” when they go to a Canadian court to seek protection from their creditors. They do file for protection from their creditors under the inelegantly-named Companies’ Creditors Arrangement Act. That’s a federal law that basically gives a company time to try to work out its financial difficulties with those to which it owes money. A company files under the CCAA for permission to come up with a restructuring or reorganization plan that would give it time (often 30 to 90 days) to rearrange its affairs so that it can keep operating. As long as a CCAA order remains in place, creditors are not allowed to take any action to collect money owed to them. They can’t seize the company’s property or petition it into bankruptcy. Since a CCAA filing is made because a company is deeply in debt (under CCAA rules, a company must have more than $5 million in liabilities), the first order of business is to strike some kind of deal with the peop
When an individual or business is unable to make payment to creditors to pay off their debts, they can file for bankruptcy protection under the bankruptcy laws of the United States. For an individual, bankruptcy protection may involve either a cancellation of most debts, along with the selling off of some of their assets, or a structured plan to pay down the debts that are owed. For a business, bankruptcy protection may either provide complete or partial relief of debts and contracts, assuming the business will remain in operation, or the business may cease operation and sell off its assets to pay debts. There are two types of bankruptcy protection commonly used by individuals: Chapter Seven, and Chapter 13, where “chapter” refers to the chapter of the bankruptcy code that describes each one. In Chapter Seven, also called a “straight bankruptcy” or “liquidation”, a trustee is appointed to control the individual’s assets. The trustee then liquidates, or sells the assets, then gives the
The filing of a bankruptcy petition creates an automatic stay, protecting you from creditors trying to collect debts. Creditors can no longer call you, send collection letters, sue you, collect judgments, garnish your wages, or take any other legal action against a debtor, without permission of the BankruptcyCourt.
