The 5 Best Licensed Insolvency Trustees in Toronto [2024]

In Canada, insolvency refers to the inability to meet one’s financial obligations as they become due. It could mean that you’re unable to pay your mortgage, credit card bills, and other debts. Insolvency could lead to filing for bankruptcy, which is a legal process that provides financial relief to individuals or businesses that no longer can pay their debts.

When you claim insolvency, you’re essentially stating that you are unable to pay your debts as they’re due. In Canada, this typically leads to two main routes: filing a consumer proposal or declaring bankruptcy. A licensed insolvency trustee will guide you in determining the best course of action based on your financial situation. The process aims to provide you relief, whilst treating creditors equally.

There are four primary types of insolvency: cash-flow insolvency, balance-sheet insolvency, legal insolvency, and technical insolvency.

1. Cash-flow insolvency: This happens when an individual or company doesn’t have the means to pay off their short-term debts.
2. Balance-sheet insolvency: This is when a person’s or company’s total debts exceed their total assets.
3. Legal insolvency: This type of insolvency arises when the total amount of an entity’s debt exceeds the total fair market value of all of its assets.
4. Technical insolvency: This is a situation where a company or individual has the assets to cover debts but lacks the appropriate form of payment—they cannot convert these assets to a form that enables them to settle their obligations.

When insolvency is claimed, the treatment of the debt depends on whether bankruptcy is filed or a consumer proposal is made. In a bankruptcy, assets could be sold to pay back creditors, and any remaining unsecured debts are generally discharged. In a consumer proposal, you work with a Licensed Insolvency Trustee to negotiate a payment plan with creditors to pay a portion of what is owed. This prevents the need to sell assets. After completion of the proposal terms, the remaining unsecured debt is discharged. In both scenarios, they provide legal protection from debt collectors.