Debt Relief Experts
For most Canadians struggling with debt, a Licensed Insolvency Trustee (LIT) is the professional you need to help resolve your financial difficulties. LITs are the only professionals legally authorized to administer consumer proposals and bankruptcies in Canada. While bankruptcy lawyers play an important role in specific situations, they cannot file these debt relief solutions on your behalf.
In this article, we explain the key differences between a bankruptcy lawyer and a licensed insolvency trustee and help you understand which professional is right for your situation.
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What Does a Licensed Insolvency Trustee Do?
A licensed insolvency trustee (LIT) is federally regulated and provides professional debt help and insolvency services to Canadians dealing with debt problems. LITs are required to be licensed by the Office of the Superintendent of Bankruptcy (OSB). The OSB administers the Bankruptcy and Insolvency Act (BIA) and regulates the insolvency industry in Canada.
A Licensed Insolvency Trustee administers four types of bankruptcy in Canada:
- Personal bankruptcy
- Consumer proposal
- Division 1 proposal
- Business bankruptcy
Each of these options provides protection from legal actions taken by their creditors, such as wage garnishments, asset seizures or frozen bank accounts. A bankruptcy process also stops any legal actions that have already started taking place.
As an officer of the court, a licensed insolvency trustee’s main function is to:
- Ensure bankruptcies and consumer proposals follow legal processes
- Treat both creditors and debtors fairly
- Administer bankruptcy estates
- Investigate claims filed by creditors
- Realize on assets and distribute funds
- Act as a consumer proposal administrator in a formal debt proposal
Licensed insolvency trustees are responsible for ensuring that creditors and debtors are treated fairly and that the bankruptcy process follows the rules of bankruptcy law. LITs work for all the stakeholders in a personal bankruptcy or consumer proposal filing, including both creditors and debtors.
If you decide to file bankruptcy or a consumer proposal, your Licensed Insolvency Trustee also provides two financial counselling sessions with a certified credit counsellor to work on budgeting, debt management and credit rebuilding.
When necessary, trustees work closely with bankruptcy lawyers to ensure proper conduct of the bankruptcy process.
What Does a Bankruptcy Lawyer Do?
A bankruptcy lawyer is a legal professional who specializes in insolvency law and helps clients with legal issues arising out of the bankruptcy process. They provide legal advice and represent clients in court proceedings. Unlike a licensed insolvency trustee, a bankruptcy lawyer does not administer debt relief options like a personal bankruptcy or consumer proposal. A bankruptcy lawyer may provide legal interpretation to the trustee, a debtor or a creditor regarding issues in a bankruptcy or proposal.
In rare and complicated personal bankruptcy or consumer proposal filings, a licensed insolvency trustee can consult with a bankruptcy lawyer to represent them at bankruptcy court or to answer legal questions. However, individuals looking for personal debt management advice and solutions will work with licensed insolvency trustees in Canada.
Key Differences Between Trustees and Bankruptcy Lawyers
Understanding the distinctions between these professionals will help you make the right choice for your situation:
- Legal Authority: Only LITs can file and administer bankruptcies and consumer proposals
- Primary Focus: LITs focus on debt relief solutions, while lawyers handle legal complications
- Initial Consultation: LITs offer free consultations, while lawyers typically charge for their time
- Government Oversight: LITs are federally regulated and must follow strict guidelines
- Payment Structure: LIT fees are regulated and come from your bankruptcy or proposal payments
When Should I Work With a Licensed Insolvency Trustee?
A licensed insolvency trustee assists in making informed choices about your debt relief options and how to deal with consumer debt such as credit cards, income tax debt, personal loans, unsecured lines of credit, judgment debts from lawsuits, and even some student loans.
A licensed insolvency trustee should be your first point of contact if you:
- Are struggling to repay your debts
- Need to explore debt relief options
- Are facing wage garnishment or other creditor actions
- Need help creating a plan to resolve your debts
Your LIT will provide a free consultation and debt assessment to discuss your financial situation and review all available debt relief options, including budgeting, credit counselling or a debt management plan, debt consolidation, bankruptcy, and consumer proposals.
When Do I Need a Bankruptcy Lawyer?
While most people won’t need a bankruptcy lawyer, there are times in the bankruptcy process when you may need a lawyer to advocate for you or to help you prepare and file materials for the Court. You may need to engage a bankruptcy lawyer if:
- A creditor is opposing your bankruptcy discharge
- You need to revive a failed consumer proposal
- Your case involves complex legal or corporate issues
- There are unusual complications with assets or creditors
It’s important to note that being called to attend bankruptcy court does not automatically mean you need a lawyer. Your Licensed Insolvency Trustee can guide you through most court appearances and situations. They have extensive experience with the court process and will advise you if your situation is complex enough to warrant hiring a lawyer for legal representation.
Your Licensed Insolvency Trustee will identify these situations early and advise you if legal representation would be beneficial.
What to Expect When Working With a Licensed Insolvency Trustee
Your journey with an LIT typically includes:
- A free initial consultation to review your situation
- A comprehensive review of all debt relief options
- Support with documentation and filing if you choose bankruptcy or a proposal
- Two financial counselling sessions focused on budgeting and credit rebuilding
- Ongoing guidance throughout the process
How Do Licensed Insolvency Trustees Get Paid?
Your initial consultation with a licensed trustee is always free. There are never any upfront fees when you work with an LIT. You only pay when you officially file, and your trustee gets paid out of the proceeds of payments you submit in your bankruptcy or consumer proposal filing.
For example, let’s say you officially decide to file a consumer proposal. You work with your trustee to determine an affordable monthly payment to eliminate all your unsecured debt. Your trustee negotiates with your creditors, and they agree to the monthly payment you have proposed. Your consumer proposal is then deemed accepted. Your trustee’s fees come out of the same monthly consumer proposal payment you make and that’s all you pay. There are no extra costs or set-up fees.
Watch Out for Unlicensed Debt Consultants
While there are many companies claiming to help with debt problems, only licensed insolvency trustees can administer consumer proposals and bankruptcies. Unlicensed debt consultants and credit counsellors cannot help you file these legal debt solutions.
Before working with any debt professional:
- Ask for their credentials
- Verify their licensed status
- Ensure all payments are made directly to the licensed insolvency trustee
- Don’t make payments until your proposal is officially filed
Remember, while filing bankruptcy may feel like your only option, it’s important to explore all available debt relief solutions. A Licensed Insolvency Trustee can help you understand if bankruptcy in Canada is truly your best path forward or if other options might better suit your needs.
If you’re struggling with debt, contact a licensed insolvency trustee today for a free consultation to discuss all your repayment options. At Hoyes, Michalos & Associates, we’re here to help you find the right solution for your specific situation and guide you toward a debt-free future.
