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The major purpose of consumer insolvency is to give a person, hopelessly burdened with debt, the opportunity of a fresh financial start. A person going into bankruptcy is usually out of bankruptcy in nine months. All his debt with some exceptions are erased upon his discharge.
A debtor can also file a proposal to his creditors thus avoiding bankruptcy. Proposals allow only a portion of the debt to be repaid. Proposals are almost always accepted by creditors.
There are two types of professional a debtor can get help and advice from; an insolvency lawyer and a trustee in bankruptcy. Every debtor who files bankruptcy or a proposal must deal with a trustee in bankruptcy as only trustees are licenced by the federal government to administer bankruptcies and proposals.
A debtor should seek advice from an insolvency lawyer if he has complicated issues or if a considerable amount of money is involved. Trustees are trained to recognize complicated issues that debtors have and often refer debtors to an insolvency lawyer when the trustee feels a conflict of interest may arise.
Businesses can be petitioned into bankruptcy or placed into receivership by the financial institute or lender who has security. The lender, when he has evidence to suggest the business is in serious financial difficulty, will take this action in order to cut his losses and to realize on his security. Lenders use insolvency lawyers to ensure they are acting within the law and to preserve their rights to pursue the principal personally for any shortfall.
A principal of a business often has compelling reasons for placing the business into bankruptcy or convincing the lender to place the business into receivership:
By acting in a timely fashion the business assets may be sold for sufficient money to pay off the creditors or get as much as possible for the secured creditor and priority creditors so the principal's personal guarantees and statutory obligations are not called upon;
The principal may simply be exhausted from the stress and pressure of fighting a losing battle trying to save the company and want someone to take over the winding up;
The principal may want a professional to liquidate the business so the creditors are paid out in an orderly fashion in accordance with the security and priorities they enjoy.
The principal may want a professional to liquidate the business so that the creditors will know that the funds have been paid out correctly and that a report will be made to the creditors so they know that no funds were diverted by the principal.
More businesses "go under" or fail than is necessary! Very often a business
can be "saved" if caught in time. Even if a company is insolvent
it may be possible to save the company by using a provision under the Bankruptcy and Insolvency Act to file a Proposal, (an arrangement)
with the creditors of the company.
The way a Proposal works is that a company, through a Trustee in Bankruptcy, files the Proposal ("offer"), to the company's creditors asking them to accept less than the monies they are owed in order that the company might survive.
The trustee works with the owners of the company in drafting a Proposal that presents a "win - win" situation for both the company and the creditors. Typically, the creditors are asked to give up rights to the monies they are owed in exchange for an offer by the company to pay so many cents on the dollar (say, 25 or 50 or 75 cents) over time. Sometimes the company pays back 100% of what it owes but it is granted a period of time, say 6 months or a year, in which it makes no payments.
In a successful Proposal the company wins because it survives. The creditors win because they retain a customer and also because they get some of their money whereas in a bankruptcy they probably would get nothing.
As was the case, above, with consumer insolvency there are two types of professional a debtor can get help and advice from; an insolvency lawyer and a trustee in bankruptcy. Every debtor who's business goes into bankruptcy, receivership, or files a proposal must deal with a trustee in bankruptcy as only trustees are licenced by the federal government to administer bankruptcies and proposals.
A debtor should seek advice from an insolvency lawyer if he has complicated issues or if a considerable amount of money is involved. Trustees are trained to recognize complicated issues that debtors have and often refer debtors to an insolvency lawyer.
Bankruptcy Predictor - Measure the financial strength of your company!
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Business Proposals - Saving a Company from Bankruptcy!
If you have a severe financial problem you may find solutions at the following sites:
Canada Bankruptcy.
Lawyer Locator
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