In the first quarter of 2020, there were a total of 12,078 filings for bankruptcy in Canada. That represents a 3% year-over-year decrease from 2019.
Interestingly, the same downward trend in bankruptcy filings occurred in the US. From June 2019 to 2020, there were a total of 682,363 filings, an 11% decrease from the previous year.
Much of the similarity ends there, though. In fact, even the legal bankruptcy terms differ between the two countries.
On that note, we created this brief guide comparing bankruptcies in Canada vs. the US. Read on to learn the difference between the two, as well as their alternatives.
What Does Bankruptcy in Canada Mean?
Canada’s Bankruptcy and Insolvency Act governs bankruptcies in the country. Declaring bankruptcy in the Great White North absolves a person or an entity from the debts they owe.
Personal, small business, and corporate bankruptcies are the types of bankruptcy in Canada. The majority of bankruptcies filed here are from consumers.
Personal bankruptcies are the most common, considering the large consumer debt in Canada. As of the first quarter of 2021, consumer debt here averaged $23,386. That doesn’t even include mortgage debt.
Regardless of the type of bankruptcy you need to file, you must do it with a Licensed Insolvency Trustee (LIT). These are professionals authorized by the Canadian government itself. There are over 1,000 individual LITs and more than 200 LIT firms in the country.
What About Bankruptcy in the USA?
The US Bankruptcy Code governs bankruptcy proceedings in the United States. This law is also known as Title 11 of the United States Code. By law, all bankruptcies in the US must go through the United States Bankruptcy Court.
There are six main types of bankruptcies in the US, referred to by their chapter in the Bankruptcy Code. These include Chapters 7, 9, 11, 12, 13, and 15. Of these, Chapter 7 is the most common, followed by Chapter 13 and then Chapter 11.
Chapters 11 and 13 bankruptcy are the most common since they are for individuals. These bankruptcies allow consumers to eliminate most of their debts. Total consumer debt in the US, in turn, has reached an all-time high of $4.2 trillion in February 2021.
Alternatives To Declaring Bankruptcy
A consumer proposal is a common alternative to bankruptcy in Canada. However, Canadian consumers also need to work with LITs if they opt for this method. According to Bankruptcy Canada, Inc., this lets consumers retain control over their assets.
The US doesn’t have a similar program, but one can still avoid bankruptcy with debt counseling. A debt counseling agency creates a plan for the debtor to pay back their creditors over time. In this case, no bankruptcy will appear on the person’s credit report.
Canada’s version of debt counseling is a debt management program (DMP). A credit counselor negotiates with creditors on behalf of the debtor. The negotiations often include requesting the creditors to lower interest rates or fees.
Bankruptcy Should Always Be Your Last Resort
Whether you plan to declare bankruptcy in Canada or the US, it should be your last option. After all, it will stay in your credit report for many years. It will affect your ability to get new credit, even once your finances are back on track.
So, before you file for bankruptcy, explore all your available alternatives first.
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