Insolvency Explained – Everything You Need to Know About Insolvency

what is insolvency

When hearing the term “insolvency,” most people automatically think it means they can’t pay their debt anymore and are bankrupt. While insolvency means that you can’t repay your debt because your debts are greater than the value of your assets, and declaring bankruptcy is a legal process to help people struggling with debt, there are distinct differences.

This blog will examine the differences between insolvency and bankruptcy and the different solutions for insolvency.

The Definition: What is Insolvency? 

To better understand, let’s first define what insolvency legally is.

According to the Bankruptcy and Insolvency Act (BIA), an insolvent person has to fulfil the following criteria:

  • They reside, do business or have property in Canada,
  • are not bankrupt,
  • But have liabilities to creditors of at least $1,000 and
    • Are not able to meet their financial obligations as they become due,
    • have stopped paying their financial obligations in the ordinary course of business when the obligations become due, or
    • Are an individual whose property is not sufficient to enable payment of all their financial obligations

What Does it Mean to be Insolvent?

To be considered insolvent, you either have to be unable to meet your financial obligations or your debts have to be greater than your assets.

To find out if you are insolvent, there are two ways:

  • If you don’t have the money to pay for the minimum payment toward your debt on the date, it becomes due.
  • Suppose your assets’ total value is insufficient to cover your debt. This means that if your debt is $15,000 and the sum of your assets, such as your car, comes to $10,000, you are insolvent because selling your assets will not be enough to repay your debt.

So it is possible not to be able to make your monthly minimum payments but not be insolvent. This is the case if selling your assets would cover your debt.

The Difference Between Insolvency and Bankruptcy

The main difference between insolvency and bankruptcy is that one is a financial state and the other a legal procedure.

As we established above, insolvency is when you cannot meet your financial obligations. Bankruptcy is one of several different debt management options that allows you to be discharged from the obligation to pay your debts.

How to Find out If You’re Insolvent

You may be insolvent if you cannot meet your monthly financial obligations or if the total value of your assets is less than the total amount of your debt. 

If you believe you are insolvent and need help managing your debts, contact one of Risman Zysman’s Licensed Insolvency Trustees today for a free, confidential, no-obligation consultation at (416) 222-4600 or fill out our convenient online form

Our trustee will work with you to review your debts, income and assets to determine whether you are insolvent. They will then explain all possible options to help you manage your debts.

Consequences of Insolvency

There are some potential unpleasant consequences to insolvency. Being unable to keep up with your monthly payment could lead to aggressive debt collection calls and even court action such as wage garnishment or freezing your bank accounts. 

Speak to one of our Licensed Insolvency Trustees to find out how we can help you address your insolvency and lead you to financial recovery.

Solutions for Insolvency

There are several options to address the insolvency.

Personal budgeting

Sometimes, you can manage your debt and get back on track with better money management. While personal budgeting will require dedication and discipline, it is one way to lower monthly expenses and put the extra money toward repaying your debts. It also is the simplest solution as it involves neither selling any assets nor damaging effects on your credit score.

Debt consolidation

In debt consolidation, you aim to combine multiple debts under a single payment. This can be achieved by taking up a consolidation loan with a low-interest rate to pay off higher-interest debt. This can also extend your debt’s due date and make it easier to manage.

Consumer proposal

A consumer proposal is a legal agreement between you and your creditors. This agreement covers all unsecured debt, such as credit card debt, tax debt, personal loans or student loans (depending on their age), combined into one monthly payment. A consumer proposal can reduce your debt by up to 75%.


If you don’t have the funds to cover the payments of a consumer proposal, bankruptcy might be the best solution to your debt problems. It can eliminate all unsecured debt, including all debt to the CRA, credit cards or personal loans.

Explore Your Options

Insolvency can be an uncomfortable and stressful situation. But there are solutions that can help you manage your debt and get you on the road to financial recovery. The Licensed Insolvency Trustees of Risman Zysman can help you with that.

The Role of an Insolvency Trustee

A Licensed Insolvency Trustee (LIT) is a financial specialist licensed by the federal Office of the Superintendent of Bankruptcy (OSB) to advise the general public on debt-related topics and allowed to administer insolvency processes.

A LIT has the experience and expertise to assess your financial situation and help you find suitable options for debt management and relief. They are the only financial professionals legally allowed to administer insolvency processes such as customer proposals or bankruptcies in Canada. They also can act as an intermediary between you and your creditors if any problems arise.

Risman Zysman has over 45 years of experience providing quality debt solutions. Our team of professionals understands the fears and frustrations of individuals facing financial difficulty. At Risman Zysman, we present each client with a full range of options and guide them to make the right choices so they can move forward.

To find out how we can help you, call us at 416-222-4600 and get a free, confidential, no-obligation consultation today! Risman Zysman can help you on the road to financial recovery.

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