[troutman]

Originally Posted by yads

Unless your parents/family were guarantors on the debt, the bank or whoever owns your debt is SOL.

Here's a question, who gets first crack at collecting? Let's say your estate is worth $10K, but you owe $10K to the government, and 2 $5K loans to 2 different banks. Who gets to collect. Or is your estate divvied up between the creditors, like $5K would go to the government and $2.5K to each bank?

http://en.wikipedia.org/wiki/Bankruptcy_in_Canada

Creditors
a) Priority of Claims

Section.2 of the BIA defines a "creditor" as a person having a claim, unsecured, preferred by virtue of priority under s.136 of the BIA or secured, that can be proved as a claims under s.124 of the Act. The creditors may be divided into four categories:

• Secured creditors are creditors, whose claims are guaranteed by some security in bankrupt’s property. The secured creditors are on the top of the bankruptcy priority of claims scheme. They still need to prove the claim to the trustee in bankruptcy or in the court, however they can always apply for an order to take possession of their security as soon as they give a reasonable notice of their intention to do so to the bankrupt or the trustee in bankruptcy.

• Preferred creditors are creditors, whose claims come second under priority of distribution in the BIA by virtue of s.136(1) of the BIA. The priority of claims is justified by necessity to protect vulnerable individuals (employee’s wages, spousal payments, child support), administration of the bankruptcy process (trustee in bankruptcy’s fees, cost of administration of the estate), public purse (municipal taxes) or other public policy rationales (landlord’s rent claims). If property of the bankruptcy estate is insufficient to compensate all preferred creditors, the property is distributed proportionally to the amounts of preferred creditor’s claims (pari passu principle in s.141 of the BIA). The preferred creditors become unsecured creditors for the rest of the uncompensated claim. Secured and preferred creditors must be fully compensated, where a consumer proposal is made to the unsecured creditors.

• Unsecured creditors are the creditors, whose claims are not guaranteed by some security in bankrupt’s property and do not have priority under s.136(1) of the BIA. If the property of the estate is insufficient to compensate all unsecured claims, the property is distributed proportionally to unsecured creditor’s claims (pari passu principle in s.141 of the BIA).

• Deferred creditors the creditors whose wages are deferred for public policy reason, i.e. family bonds to the bankrupt. Their claims can be compensated only after unsecured creditor’s claims are fully repaid. The deferred claims include back wages to bankrupt’s spouses (s.137(2)) and back wages to other relatives (s.138).