If you are in debt, you may hear the word “insolvency” being used. What does this mean, and how does it affect the options available to you for dealing with your debt?
The Bankruptcy and Insolvency Act (the “BIA”) is the legal framework used by all Licensed Insolvency Trustees (the “Trustee”) for administering how they help companies and individuals who find themselves in financial difficulty due to having an unmanageable amount of debt.
According to the BIA, an Insolvent person is a person who, for any reason, is unable to meet their obligations as they fall due. Simply put, this means that if you have stopped paying your debts due to a lack of available funds or feel that you are unable to pay your debts, then you are insolvent.
In addition, you may also find yourself in the position that you have more debts than the value of any assets you own, and this can also cause you to be insolvent.
Insolvency is, therefore, a state of being, and if you are insolvent, you may feel like you have fallen into a deep hole that you are unable to crawl out of. Some people call this the debt spiral. Having unmanageable debt can cause anxiety, health issues, and can affect your family relationships and have an impact on your work performance.
The test for insolvency is important because it allows a Trustee to be able to help you. Most people who see a Trustee have more debt than assets, and in this situation, the Trustee will craft a solution that could see you just repaying a percentage of what you owe to your creditors without any interest.
Because of the current higher interest rates, many people who have more assets than debts (because they may own their own house) are now seeking the advice and assistance from a Trustee. In these situations, a Trustee can still help by filing a repayment plan with your creditors; however you may end up paying back the full amount of the debt over a five-year period. Importantly, in these situations, the interest also stops, which adds up to a very large saving compared to trying to repay the debts yourself.
If you are feeling overwhelmed by your current debt payments, whether you own your own house or not, reaching out to a Trustee can provide you with some free no obligation advice that may just be what you need to get back on track.
Taylor Leibow Inc. has been helping people get out of debt in the Hamilton-Niagara area for over 75 years. To book a free consultation with one of their Trustees Kathy Lenart or Jeffrey Lewis, please visit www.freshstartnow.ca or call 905 523 0003.
By Jeffrey Lewis
CPA, CA, CIRP, LIT
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