A “debtor” is generally defined as a person or entity that owes money to another person or entity. In the context of the BIA (Bankruptcy and Insolvency Act), the debtor is often a person or a business that is insolvent and facing financial difficulties to the extent that they cannot repay their debts as they come due.
When a debtor chooses bankruptcy as a solution to their debt problems, they are sometimes referred to as a “bankrupt”. This term is therefore interchangeable with the term “debtor”.
Under the BIA:
- A debtor can be an individual, a company, or other legal entities.
- They are considered insolvent if they are not able to meet their financial obligations as they become due, or if the value of their assets is less than the value of their liabilities.
- A debtor can make a proposal to their creditors in an attempt to restructure their debts without declaring bankruptcy. If the proposal is accepted by the creditors and approved by the court, the debtor can continue to operate and repay part or all of their debts under the terms of the proposal.
- If the debtor is unable to repay their debts or make an acceptable proposal, they can declare bankruptcy. In this case, the debtor’s assets are liquidated, and the proceeds are distributed among the creditors. They are then sometimes referred to as “bankrupt”.