What Is A Licensed Insolvency Trustee (Trustee In Bankruptcy)?
Licensed Insolvency Trustees (“LIT”), formally known as bankruptcy trustees, are federally regulated professionals who provide advice and services to individuals and businesses with debt problems. LITs help people make informed choices to deal with their financial difficulties.
While the court can appoint a trustee in bankruptcy, in practice, consumers decide which trustee they wish to work with to assist them in obtaining debt advice, filing a consumer proposal, or declaring personal bankruptcy.
The trustee is responsible for investigating the Debtor’s financial affairs, administering the estate, and for ensuring that the bankrupt complies with the provisions of the Bankruptcy and Insolvency Act (BIA). The trustee is accountable to the court, the Office of the Superintendent of Bankruptcy, and to you.
An LIT should not be confused with a debt consultant. Debt Consultants are often called many different names such as ‘Debt Consultants’, ‘Debt Relief Specialists’, ‘Debt Relief Experts’, and many more. Debt consultants are not regulated by the OSB and are not authorized to administer bankruptcies or consumer proposals.
Why do I need a Bankruptcy Trustee?
LITs are the only professionals authorized to administer government-regulated insolvency proceedings that allow you to be discharged from your debt, such as consumer proposals and bankruptcies. For individuals who are in significant financial difficulty and looking for a fresh financial start, these options may be the best solution.
When you file a consumer proposal or declare personal bankruptcy in Canada, your Licensed Insolvency Trustee will:
- Help you understand all available debt solutions and debt relief options
- Ensure you understand the consumer proposal and bankruptcy process
- Advise you of your rights and obligations
- Administer your estate
- Determine your disposable income against guidelines set by the federal government
- Make distributions to your creditors
The Bankruptcy and Insolvency Act (“BIA”)
The BIA is a federal law that covers all of Canada. The Office of the Superintendent of Bankruptcy, which is part of Industry Canada, is responsible for administering the Act.
The BIA sets out the rules and procedures for dealing with insolvency. The Act also provides for the protection of consumers and creditors, and establishes the powers and duties of trustees.
The BIA is not a do-it-yourself kit. It is a complex legal document that, for the most part, can be understood only by someone with specialized knowledge and training.
You should always get professional help when you are considering filing a consumer proposal or declaring personal bankruptcy.
How much does it cost to get professional advice from a Licensed Insolvency Trustee?
Generally speaking, most Licensed Insolvency Trustees will provide debt and financial advice free of charge. In fact, one of their jobs is to ensure that you understand the options available to you and ensure you adequately understand them.
How do licensed insolvency trustees get paid then?
Licensed Insolvency Trustees do eventually get paid for the advice provided, but only if you end up filing a consumer proposal or personal bankruptcy. This payment is based upon a tariff set by the Canadian Government and is paid out of the money you pay into a consumer proposal or a bankruptcy.
How much does it cost to file a consumer proposal?
Most trustees do not require an upfront payment to file a consumer proposal. That, however, does not mean there are no costs to filing a consumer proposal. The government sets a maximum fee that Licensed Insolvency Trustees can charge for administering a consumer proposal.
This fee is based on the total amount of debt included in your consumer proposal and is paid out of the money you pay into your proposal.
What does this mean from a cash flow perspective?
It means there aren’t any additional payments required to file a consumer proposal in Canada. The fee of the Trustee is included in your consumer proposal payment.
How much does it cost to declare bankruptcy?
The government also sets a maximum fee that can be charged for administering a bankruptcy. The costs associated with filing bankruptcy are based on an income test, called surplus income payments, and equity in non-exempt assets.
The combination of these two amounts is how much you would be required to pay. Because every situation is unique, you should speak with a Licensed Insolvency Trustee to understand what your payments would look like if you decide to declare bankruptcy.
In the event you are not required to pay surplus income payments or do not have any assets you may be required to pay the trustee a voluntary payment. Typically speaking, this voluntary cost ranges from $100 on the low end, to $200 on the high end for the duration of your bankruptcy. These depend on several factors such as whether this would be your first bankruptcy or not, and your overall financial position to name just two.
If you do have required surplus income payments or any realization value in any of your non-exempt assets, your payment will be based on these values. These payments do not begin until after you file bankruptcy.
While talking about bankruptcy – the question as to whether you will lose your house if you go bankrupt or not is always asked. Read the article to learn more, however, the answer is usually not.
What does this mean from a cash flow perspective?
It means that there isn’t additional money required to cover the cost of declaring bankruptcy. The trustee fee is paid out of the money you pay as part of your bankruptcy monthly payments.
What are bankruptcy trustee fees?
Bankruptcy trustee fees are the fees charged by a licensed insolvency trustee for administering a bankruptcy. These fees are regulated by the federal government and are paid out of the money you pay into your bankruptcy estate.
Consumer proposal fees
Fees in a consumer proposal are based on a government tariff (Rule 129 of the Bankruptcy & Insolvency Act) and are based upon the total amount of money paid to creditors via the consumer proposal.
The calculation is much simpler than how personal bankruptcy fees are calculated.
The fee for a consumer proposal is calculated as:
- $1,500 flat-fee + 20% of the total amount received;
- A 5% levy is paid to the federal government of the total amount received.
- Reimbursement for credit counseling fees, and filing fees;
Personal bankruptcy fees
Most personal bankruptcies in Nova Scotia, New Brunswick, and Prince Edward Island are summary administrations. Fees in a summary administration are also based on a government tariff (Rule 128 of the Bankruptcy & Insolvency Act) and are based largely on any required surplus income payments and asset realizations in a bankrupt’s estate.
These fees are paid before distribution is made to the creditors so it is, in essence, the creditors who are paying the bankruptcy trustee’s fees.
These fees are calculated as:
- 100% of the first $975;
- 35% up to the next $2,000;
- 50% of receipts over $2,000.
- Reimbursement for credit counseling fees, filing fees, and administration costs.
Licensed Insolvency Trustee – Conclusion
Regardless if you are considering filing bankruptcy or a consumer proposal you need to seek out the advice of a LIT. They will present you with all of your relevant debt relief solutions. Trustees are highly regulated and are debt professionals – if you are looking for a trustee near you to assist you with a bankruptcy or consumer proposal, then look no further than Powell Associates Ltd for a personalized and quality service. We offer a free financial assessment to help you understand your options and pick the most appropriate debt solution for your situation.
This article was written by Angela Rodgers, CIRP, LIT. She is a Licensed Insolvency Trustee and the President of Powell Associates Ltd. She has worked in the insolvency industry for over 20 years. No matter if you are looking at filing bankruptcy, a consumer proposal, or simply looking for debt management advice, Angela can help.