Your Guide to Understanding Receivership vs. Bankruptcy

You may have heard the word “receivership” used when bankruptcy is discussed – especially business bankruptcy. But does the term “receivership” apply to consumer bankruptcies? If a consumer file for personal bankruptcy, does he or she “go into receivership” in the same way that a business does?

What Is Receivership?

 When considering receivership versus bankruptcy, it is helpful to review a few definitions.

The term “go into receivership” is popularly used to indicate that an entity, usually a company, has filed for bankruptcy. However, bankruptcy and receivership are not the same things, and the term “receivership” can be misleading.
It all hinges on the definition of “receiver” in the context of insolvency solutions.

A “receiver” is a third party engaged for the purpose of liquidating assets that have been used as security against a debt. These assets are then used to satisfy the creditors. Thus, “receivership” only applies when assets used as security are being liquidated.

A common example is a house that must be sold after a mortgage default so that the company that financed the purchase of the house can recover its security assets. In this case, the Licensed Insolvency Trustee who is facilitating the bankruptcy will likely also act as the receiver.

Is Receivership the Same as Bankruptcy?

No. receivership is a process distinct from bankruptcy, although receivership is a part of many consumer bankruptcies and is a legal proceeding carried out under Canada’s Bankruptcy and Insolvency Act.

If a consumer does not have any secured assets, such as a mortgaged house or a financed vehicle, that they must give up in a bankruptcy, then their bankruptcy will not involve receivership.

Will Receivership Make My Consumer Bankruptcy More Complicated?

Receivership is a typical part of many consumer and business bankruptcies, and there is nothing unusual about it as part of a bankruptcy. It is common for consumer bankruptcy to involve secured assets, such as houses or vehicles, that must be liquidated to satisfy creditors. Since the Licensed Insolvency Trustee who is handling the other aspects of your consumer bankruptcy is typically also the receiver, as a consumer, you will not notice any complication in the process or additional people involved.

Do All Consumer Bankruptcies Involve Receivership? 

No. If the person filing for bankruptcy has no secured assets, a receiver will not be needed. For instance, if the person’s assets include only cash in the bank, investments, personal furnishings, tools, and vehicles that are not financed, then that individual’s bankruptcy will not involve receivership.

Do Consumer Proposals Involve Receivership?

Consumer proposals do not typically involve receivership, as most consumer proposals do not require the liquidation of secured assets.

Where Can I Learn More About Receivership vs. Bankruptcy?

Visit our webpage, Receivership 101, for more information on receivership versus bankruptcy.

Another great way to learn about how receivership functions within the bankruptcy and how this might apply to your financial situation is to meet with a Licensed Insolvency Trustee. Your first meeting is free and confidential, and you’ll hear about what options you may have to brighten your financial future.