Lexique de l’endettement et de l’insolvabilité : 13 définitions utiles

Insolvency

Persons or businesses are said to be insolvent when they :

• are unable to pay their debts and/or meet their obligations as they fall due;
• have ceased to meet their current obligations;
• have total assets that, if sold, are or would be insufficient to meet all their obligations.

Bankruptcy

Personal bankruptcy is a process that allows you to discharge most of your debts. It is governed by the Bankruptcy and Insolvency Act (BIA). Only a licensed insolvency trustee such as those at Raymond Chabot can manage personal bankruptcy and file for it on a client’s behalf. Bankruptcy has many advantages. For example, it protects you from being sued by your creditors or having your wages and assets seized, and prevents services such as electricity from being cut off.

Consumer proposal

A consumer proposal, also called a proposal to creditors, consists in negotiating the repayment of your debt with your creditors. It can help you avoid bankruptcy. Like bankruptcy, it is governed by the Bankruptcy and Insolvency Act (BIA). With a consumer proposal, you repay your debts through a fixed monthly payment for up to 60 months. One of our licensed insolvency trustees will work with you to determine the monthly payment to propose to your creditors, and guide you through the process.

Balance sheet

A balance sheet takes stock of your financial situation at a specific date. One of our licensed insolvency trustees will work with you to draw up a list of your assets and liabilities. They will then present this balance sheet to your creditors, enabling them to:

• decide whether to accept a proposal, such as a consumer proposal;
• be informed of the bankruptcy.

Secured creditor

A secured creditor is a person who holds a mortgage, pledge, encumbrance, or lien on or against the debtor’s property or part of it, as security for a debt that is due or becoming due. For example, when you take a loan to buy a house or car (i.e., a mortgage or car loan), the creditor holds a security interest in the property. If you default, the lender has the right to keep the property and use it.

Dischargeable vs. non-dischargeable debt

Debts represent the total money you owe to your creditors. They include unpaid amounts on credit cards and lines of credit, personal loans, tax debts, and so on. Only some of these debts are dischargeable through bankruptcy or a consumer proposal.

Dischargeable debts mainly include:

• Tax-related debts
• Debt related to credit cards or lines of credit
• Overdue invoices
• Personal loans

Non-dischargeable debts include:

• Fines, penalties or offenses
• Debt for alimony
• Debts due to fraud or misrepresentation
• Student loans, in some situations

For more information, read our article on dischargeable and non‑dischargeable debt.

Assets

Your assets are your property and include houses, land, cottages, automobiles, furniture, computer equipment, bank accounts, investments, RRIFs and RRSPs (except for amounts paid into them less than 12 months prior to bankruptcy), and so on. Your assets therefore have a positive economic value, unlike your liabilities, which have a negative economic value.

Liabilities

Your liabilities are your total debts. They may include unpaid invoices, bank debts, personal loans and mortgages. If your liabilities exceed your assets, you’re in bad financial shape and should seek the help of a licensed insolvency trustee such as those at Raymond Chabot.

Debt consolidation

Debt consolidation will allow you to pool your debts and pay them off with a single loan. For consolidation to be beneficial, the financial institution would have to grant you a loan at an interest rate lower than that charged by your creditors. And, as long as you make regular payments, your credit rating won’t be affected.

For more information, read our article on debt consolidation.

Seizure

Seizure enables creditors to seize your income or assets if you are unable to repay them.

Licensed insolvency trustee (LIT)

Licensed insolvency trustees are authorized by the federal government to manage a bankruptcy process or propose an arrangement to creditors. These professionals will guide you, without judgment, toward debt relief. The Raymond Chabot team is recognized by creditors, tax authorities, the business sector and financial institutions.

Guarantees

A guarantee allows a person to stand surety for the payment of debt you are unable to pay. This commitment must be made by contract. Please note that bankruptcy or a consumer proposal does not discharge a co-signer who has guaranteed a loan.

Equity or net worth

Equity is the difference between the current market value of your property and the balance remaining on your loan. An example would be your home and the balance remaining on your mortgage. The terms “remortgaging” or “refinancing” mean the same thing. In the vast majority of cases, consolidating your debts by mortgaging your home is not a good idea.

Do you have a lot of debt? Don’t hesitate to contact one of our financial recovery counsellors. They can help you find solutions to reduce or eliminate your debt.