Canadian Association of Insolvency and Restructuring Professionals

Glossary of Industry Terms

This glossary provides a basic definition of some terms used in the Bankruptcy and Insolvency Act (“BIA”) but is not all inclusive.

Absolute Discharge – The bankrupt is totally freed of all bankruptcy duties and debts provable in the bankruptcy, except those debts referred to in section 178(1) of the BIA.

Annulment – Legal procedure for declaring an act invalid or void. The act is declared to have had no legal existence. For example: a bankruptcy may be annulled under certain conditions; a proposal may be annulled if the terms are not met.

Assets (also referred to, generally, as Property) – Property, both Personal Property, such as cars, boats, and investments, and Real Property, such as land, houses, and cottages. In the case of a business, assets include equipment, inventory, accounts receivables, etc.

Assignment in bankruptcy – A transfer by an insolvent person to a trustee of all his property for the general benefit of his creditors.

Bankrupt – a person who has made an assignment in bankruptcy or against whom a bankruptcy order has been made or whose proposal under Part III Division I has been rejected by the creditors or the legal status of that person

Bankruptcy – the state of being bankrupt or the fact of becoming bankrupt

Certificate of Discharge – legal document issued by a LIT to a first- or second-time bankrupt which has the same effect as an Absolute Order of Discharge.

Collateral – Assets owned by the borrower (or guarantor) that are pledged to the lender as security for the performance of terms of the loan. 

Conditional discharge – The bankrupt may be required to pay a certain amount of money during a specified period, usually based on the bankrupt’s financial ability to make payments. The bankrupt may also be required to perform some task (i.e. attend counselling) or provide the LIT with information (i.e. tax slips) as a condition of discharge. The specified conditions must be fulfilled in order to obtain an absolute discharge.

Consumer proposal – an offering to creditors to extend the time to pay debts or compromise a natural person’s debts under Part III, Division II of the BIA. The total debt, excluding the mortgage(s) on the principal residence, cannot exceed $250,000

Conveyance – The transfer of real or personal property from one person to another by writing or otherwise; includes a gift, encumbrance or limitation of use.

Credit limit – The amount that creditors are prepared to lend to a person.

Creditor/Lender – A person who lends money to another person.

Debt  The amount of money owed to creditors.

Debtor/borrower – A person who borrows money from another person.

Deemed – Something that, as a result of some authoritative pronouncement (e.g. by law or by court order), should be taken as, considered as, presumed to be or understood to be something else. For example, the discharge of a LIT in a summary administration is deemed to occur although there is no order of discharge from the court; or, someone whose proposal under Part III Division I was rejected by the creditors is deemed to have made an assignment in bankruptcy, even though an assignment was not made.

Default – Failure to pay comply with a covenant or otherwise perform obligations under a contract; the occurrence of any event whereupon, under the terms of the contract (e.g. security agreement), the remedy rights under the contract become enforceable. When applied to a consumer proposal, failure to comply with the terms of the proposal constitutes a default.

Discharge – The process of law by which a person may be relieved of certain obligations, liabilities or responsibilities. For example, a bankrupt may be discharged when the Court, or the process under the BIA, acknowledges that he has fulfilled his obligations as a bankrupt and is relieved of further obligation to pay the dischargeable debts. As another example, a trustee may be discharged when the court, or the process under the BIA, acknowledges that he has completed the administration of an estate and becomes released of obligations and responsibilities in connection with administration of a bankrupt estate or a proposal.

Dividend – In an insolvency context, the pro-rata payment distributed to creditors from the estate/property of the debtor, after payment of fees and disbursements related to the administration of a bankruptcy, a proposal or a Plan of Arrangement.

Division I proposal – an offering to creditors to extend the time to pay debts or compromise a person’s debts under Part III, Division I of the BIA. A proposal filed by a natural person whose debts, excluding those secured by the principal residence, exceed $250,000 and any other person as defined under the BIA can only be filed under Division I.

Estate – Property of a bankrupt or a deceased person.

Exempt assets – Any asset owned by the bankrupt which is exempt from execution, garnishment or seizure under federal or provincial legislation and which does not vest in the licensed insolvency trustee for the benefit of creditors.

Family situation adjustment – the adjustment to the surplus income based on the percentage of the bankrupt’s available monthly income to the family unit’s available income.

Family unit – any person, in addition to the bankrupt, who lives in the same household and benefits from either the incurred or income earned by the bankrupt or who contributes to such expenses or income. A person not living in the same household is also considered as a member of the family unit if that person benefits from or contributes to the expenses incurred or income earned by the bankrupt.

Family unit’s available monthly income – family unit’s total monthly income less non-discretionary expenses.

Family unit’s total monthly income – monthly income from all sources less statutory deductions, in the case of an employee, allowable business and statutory expenses in the case of a self-employed person, and income taxes or installment payments by a self-employed person or person with insufficient tax withheld at source.

Garnishment – the attachment of property, money, or earnings belonging to the bankrupt while it is in the hands of a third party, and in most cases can only be accomplished with a garnishment order from a court of jurisdiction. An exception occurs when legislation provides for garnishment without a court order – e.g. Income tax Act, various provincial tax acts, family maintenance acts, etc.

Guarantor – A third person, not the borrower or the lender, who guarantees that the borrower will perform the terms of the loan agreement. By signing a guarantee, the guarantor is generally obligated to pay the debt in the event the debtor does not pay, (subject, of course, to some legal argument to the contrary)..

Insolvency  A factual circumstance wherein the debtor does not have sufficient income or assets to satisfy their debts.

Insolvent person – The Merriam-Webster Dictionary defines insolvent as being unable to pay debts as they fall due or having liabilities in excess of a reasonable market value of assets held. Under the BIA, an insolvent person is a person who is not bankrupt, resides or carries on business or has property in Canada, whose debts to creditors with claims provable under the BIA amount to $1,000, and

  • Who for any reason is unable to meet his debt obligations when they become due, or
  • Who has ceased paying his current obligations as they become due, or
  • Whose total asset value, at fair market value, is insufficient to satisfy the total of all his obligations.

Inspector – a representative of the creditors, appointed by the creditors, to give direction to the LIT in the administration of the bankrupt estate and approve certain reports prepared by the LIT. In a summary administration, there may be up to 3 inspectors, but they are rarely appointed. In an ordinary administration, there may be up to 5 appointed.

Installment loan – A loan agreement that calls for regular periodic payments that reduce the balance of the loan. Typical examples are car loans and mortgage loans.

Institutional lender(s) – Major banks, credit unions, caisse populaires, and credit card companies whose general business is to lend money.

Joint assignment in bankruptcy/consumer proposal – An assignment in bankruptcy or filing of a consumer proposal by two individuals where the debts can reasonably be dealt with together due to the nature of the assets, debts and relationship of the individuals. This option is only available for a summary administration bankruptcy or a consumer proposal. A joint filing must be in the interest of both the creditors and the debtors. The conditions for a joint filing are contained in OSB Directive R2.

Joint debtor(s) – A second person(s) who agree(s) to join another debtor in the borrowing. Each debtor/borrower is then considered to be "jointly and severally" (meaning separately and individually) liable for the entire debt.

Lending Agreement  An agreement, usually in writing, between a borrower and a lender that sets out the terms of the loan agreement between the two parties.

Mediation – a process available to a first- or second-time bankrupt to reach a settlement with an opposing party on an amount due for outstanding surplus income obligation or due to the fact that the bankrupt could have filed a viable proposal and thereby avoid the involvement of the Court.

Meeting of creditors – a initial meeting of the creditors, if required, convened to allow the creditors to obtain clarification on aspects of the bankrupt’s financial affairs, give directions to the LIT regarding the administration of the estate, appoint inspectors, confirm the appointment of or substitute the LIT as trustee or any subsequent meeting where creditor input is required in the administration of the bankruptcy.

Non-dischargeable debt – a debt specifically listed under s.178 of the BIA which the bankrupt cannot get relief from through the bankruptcy process based on over-riding social policy.

Non-discretionary expenses – specific expenses listed in Directive 11R2, the most common of which are child/maintenance support, spousal support, childcare, medical expenses. See Directive 11R2 for a complete list.

Official Receiver – a person appointed by the Governor in Council and deemed to be an officer of the court, who reports to the Superintendent of Bankruptcy on the estates originating in his division and who performs statutory duties as specified by the BIA. See s. 12 of the BIA.

Ordinary Administration – The process of administering a bankruptcy estate where the estimated realizable value of assets listed on the Statement of Affairs exceeds $15,000.

Person – a natural person, a partnership, an unincorporated association, a corporation, a cooperative society or organization, the successors of a partnership, association, corporation or society or organization and the heirs, executors, liquidators of the succession, administrators or other legal representatives of a person. 

Postponement/priority/subordination agreements  Agreements typically between secured creditors that detail which secured creditor(s) have rights to a debtor's assets in priority with other secured creditors. Priority agreements are where the priorities of security agreements are clearly ranked, postponement agreements are where payments to the claim of one secured creditor are postponed in favour of another secured creditor, and subordination agreements are similar to a postponement agreement where the priority and payment of a claim of one secured creditor is subordinated to the claim of another secured creditor.

Preference – A payment or transfer of property made, a provision of services, a charge on property, an obligation incurred or a judicial proceeding taken or suffered by an insolvent person, that benefits one or more of the insolvent person’s creditors to the detriment of his other creditors. For creditors dealing at arm’s length, the critical time period is within the three (3) months prior to the date of the insolvency filing. For creditors not dealing at arm’s length (generally related parties) the critical time period is extended to twelve (12) months. In the absence of evidence to the contrary, such transactions are presumed to create a preference and are void as against a LIT which effectively undoes the transaction.

Private lender(s) – Individual persons and private corporations who lend money.

Property claim – A claim for return of the property of a third party in the possession of the bankrupt at the date of bankruptcy.

Property of the bankrupt – anything owned by the bankrupt at the date of bankruptcy or that may be acquired by or devolve upon the bankrupt prior to discharge, excluding those items specifically listed in s. 67 of the BIA.

Provable claim – a debt or liability to which the bankrupt is subject at the date of bankruptcy or to which the bankrupt becomes subject prior to the bankrupt’s discharge relating to an obligation that incurred prior to the date of bankruptcy pursuant to s. 121(1) of the BIA. The purpose of the section is to ensure, as much as possible, that the bankrupt can receive relief from every kind of claim (other than those listed in s. 178 of the BIA) on his discharge and be able to make a fresh start.

Quorum – The number of members in a group required to be present (in person or by proxy) before business can be transacted. At a meeting of creditors under the BIA, a quorum is constituted by one creditor who has filed a provable claim with the trustee prior to the meeting and is entitled to vote.

Refused discharge – The court has the right to refuse a discharge, but will seldom exercise this power except in very unusual circumstances. These circumstances would usually relate to the conduct of the bankrupt, the number of prior bankruptcies filed by the bankrupt and the reasons for those bankruptcies.

Revolving credit  A loan agreement that calls for a limit on available credit, but, within that limit, the borrower can use, repay, and reuse the available credit. Typical examples are credit card accounts and lines of credit.

S. 170 Report – a colloquialism for the Report of the Trustee on Bankrupt’s Application for discharge. This is a report prepared by the LIT pursuant to s. 170 of the BIA prior to the bankrupt’s discharge which includes a report on the administration of the estate to the date of the report, the conduct of the bankrupt during the bankruptcy period and a recommendation on the bankrupt’s eligibility for discharge.

Secured Creditor – a person holding a mortgage, hypothec, pledge, charge, lien or privilege on or against the property of the debtor, or any part thereof, as security for a debt due or accruing due to him from the debtor. (see s. 2 of the BIA for a complete definition of a secured creditor). 

Secured debt  Money advanced by a lender to a borrower, where the borrower grants and the lender takes a security interest in collateral/assets owned by the borrower or guarantor.

Security – an asset pledged to guaranty the repayment of a loan or satisfaction of an obligation. Security gives a lender a legal right of access to the pledged asset and to take possession and title in case of a default on the loan. As long as loan payments are current, the borrower has the right to keep and use the asset.

Senior Bankruptcy Analyst – A representative of the Superintendent of Bankruptcy designated to supervise the administration of estates and to perform other duties as specified by the OSB. May or may not be an Official Receiver.

Statement of Affairs – Statement of a debtor’s assets, debts, income and expenses and personal information including financial conduct prior to the date of the statement. The statement is drawn up to indicate the amounts which may be expected to be realized if the debtor’s property is sold and the manner in which the proceeds of such sale will be distributed, having regard for the interests of secured, preferred and unsecured creditors. The statement must be signed by the debtor under oath when making a filing under the BIA.

Statement of receipts and disbursements – a statement prepared by the LIT on the disposition of assets listed on the bankrupt’s Statement of Affairs plus any other realizations in the estate. In the matter of a bankruptcy, there is generally one statement prepared at the end of the process prior to the distribution of assets to the creditors. In a proposal, an interim statement will be prepared with each distribution to proven creditors and a final statement at the time of the last distribution.

Stay of proceedings – an interruption or suspension of legal action and collection activity by a creditor with a claim provable under the BIA.

Summary administration – the more streamlined process of administering an assignment in bankruptcy by a natural person (an individual) where the estimated realizable value of assets does not exceed $15,000 at the date of bankruptcy.

Superintendent of Bankruptcy – the person appointed by the Governor in Council to supervise the administration of all estates and matters to which the BIA. He carries out his duties through the Office of the Superintendent of Bankruptcy (“OSB”). His powers and duties are detailed in s. 5 of the BIA.

Superintendent standards – standards derived by the OSB from the Low Income Cutoffs released by Statistics Canada and deemed necessary for basic living expenses. These standards vary for the family unit size and are adjusted annually based on the Consumer Price Index (CPI).

Surplus income – the portion of a bankrupt individual’s available monthly income that exceeds the Superintendent Standard for the bankrupt’s family unit size.

Surplus income obligation – 50% of the bankrupt’s portion of the family unit’s available monthly income. This obligation can vary from month to month.

Suspended discharge – The bankrupt has no further monetary or other obligations under the BIA; however, the absolute discharge will not occur until some specific date in the future. This type of discharge is often ordered where no further benefit can be achieved for the creditors but due to the bankrupt’s conduct, an absolute discharge is not warranted at the date of the court hearing.

Suspended and conditional discharge – The bankrupt is required to make further payment and/or complete duties and due to other matters, usually conduct, a specific period of suspension is warranted. The bankrupt will not receive an absolute discharge until both the conditions are met and the suspension period has expired.

Taxation (of Accounts) – Application to the court to have certain costs of the LIT examined and approved by the court.

Transfer at undervalue – a disposition of property/assets or the provision of services for which no consideration is received by the debtor or for which the consideration received by the debtor is conspicuously less than the fair market value of the property/asset/services.

Vest  In the context of an insolvency proceeding, the word "vest" should be read to mean that the title and the right to deal with an asset or property is no longer with the debtor but has passed to the trustee by operation of the Bankruptcy and Insolvency Act.