Purposes of the Bankruptcy System

Purposes of the Bankruptcy System
stevewelker 29.10.2014
What are the Purposes of the Bankruptcy System in Canada?

While it’s not something anyone wants to be involved in, Canada’s bankruptcy and insolvency system is an important aspect of our strong economy.  The system is often misunderstood so we’ve highlighted the main purposes of the Bankruptcy and Insolvency Act for your review below.

1) Provide a Fresh Start

A main aim of the bankruptcy system is to allow an “honest but unfortunate debtor to obtain a discharge from his debts”.  Bad things happen to good people.  People lose their jobs, become ill, or make poor decisions.  The system believes that these people have a right to be discharged from their debt and given a fresh start.

2) Rehabilitate Debtors

The law requires that every debtor complete two credit counselling sessions to improve their financial literacy and money management skills.  The system would like as few people to be required to make a second filing as possible.  Welker and Company employs licensed credit counsellors to complete this counselling.

3) Distribute Funds to Creditors

When someone is Insolvent, what they own is worth less than what they owe.  Since bankrupt’s don’t have enough money to pay all of their creditors in full, the bankruptcy system was developed to provide a fair process to distribute the bankrupt’s non-exempt assets.  The Trustee converts the bankrupt’s non-exempt assets into cash and distributes those proceeds to the bankrupt’s creditors.  Federal law outlines the order in which creditors receive dividends.

4) Investigate the Affairs of the Debtor

A small percentage of debtors attempt to take advantage of the insolvency system.  To prevent abuse, federal law provides the ability for the debtor to be examined by the Official Receiver, of the Office of the Superintendent of Bankruptcy, a creditor, and/or the Trustee in Bankruptcy.  This examination is meant to aid the identification of fraudulent transactions, or undisclosed assets.  In addition, the Trustee has a duty to verify the debtor’s statement of affairs at the time of filing a consumer proposal or assignment in bankruptcy.

5) Fraudulent Preferences or Transfers Under Value

The laws were designed to prevent debtor’s from transferring non-exempt assets to related parties in order to defeat their creditors.  Even when the debtor did receive proceeds from a sale of assets the transaction can be set aside if the proceeds were significantly less than the true value of the assets sold.  These rules were implemented for the protection of the creditors.


These objectives are never far from the minds of Welker and Company’s Trustees in Bankruptcy.  They’re why we get up every morning, and while nothing is perfect, we believe in our Canadian system and enjoy doing our part to make it work.
If you or someone you know is struggling with debt, then give us a call.  We offer free consultations and are always happy to take the time to understand each unique financial situation before offering the best advice that we can.