Updated: August 31, 2023
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. A Licensed Insolvency Trustee helps 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 Licensed Insolvency 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.
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What is 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 Licensed Insolvency 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 the help of a Licensed Insolvency Trustee when you are considering filing a consumer proposal or declaring personal bankruptcy.
Licensed Insolvency Trustee FAQs
As you explore the ins and outs of Licensed Insolvency Trustees (LITs), you may have questions about their roles and distinctions that set them apart from other financial experts.
Consider this your guide to understanding the role and nuanced expertise of Licensed Insolvency Trustees and why collaborating with a LIT is essential for navigating the world of debt relief and making informed decisions.
Are Licensed Insolvency Trustees and Bankruptcy Trustees the Same?
As of late 2015, the Office of the Superintendent of Bankruptcy (OSB) initiated a change in the insolvency professional designation to safeguard against the misuse of the former designation by unlicensed providers. This change resulted in professionals formerly known as Bankruptcy or Insolvency Trustees being redesignated as Licensed Insolvency Trustees (LIT).
This transition reflects the extensive education and training required to become a Licensed Insolvency Trustee and the wide range of services offered by these professionals. This change underscores the commitment to maintaining the integrity of the industry while offering a comprehensive array of debt relief options to Canadians.
Are Licensed Insolvency Trustees and Debt Consultants the Same?
No. Debt Consultants and Licensed Insolvency Trustees serve distinct roles in the debt relief landscape. While Debt Consultants can offer strategies or insights for managing debt, their scope and abilities are limited.
Licensed Insolvency Trustees are federally regulated by the Office of the Superintendent of Bankruptcy (OSB) and possess comprehensive knowledge of various debt relief options. LITs can evaluate your financial circumstances, suggest the most suitable course of action based on your situation, and provide debt solutions, including bankruptcy and consumer proposals.
Alternatively, Debt Consultants are not regulated by the OSB nor authorized to administer bankruptcies or consumer proposals. Although often referred to as Debt Relief Specialists or Debt Relief Experts, Debt Consultants are not licensed to file consumer proposals or bankruptcies.
Only partnering with a Licensed Insolvency Trustee allows you to implement comprehensive debt resolution strategies to regain your financial standing.
Are Licensed Insolvency Trustees and Financial Advisors the Same?
No. While Licensed Insolvency Trustees and Financial Advisors each offer expertise in financial matters, their focus and areas of specialization vary significantly. Both professionals play distinctive roles in guiding Canadians through their financial journeys.
Licensed Insolvency Trustees (LIT) are federally regulated experts authorized to administer formal processes like consumer proposals and bankruptcies. They specialize in assisting individuals and businesses facing overwhelming debt. With their comprehensive knowledge of debt relief options, they provide tailored strategies to regain financial stability.
On the other hand, Financial Advisors offer a broader spectrum of services encompassing financial planning, investment strategies, tax optimization, and estate and retirement planning. They specialize in comprehensive financial well-being rather than focusing solely on debt management.
Both offer valuable financial insights, but your financial needs will determine which professional aligns with your goals. Financial Advisors excel in helping families create well-rounded financial plans, whereas LITs possess the legal authority and specialized knowledge to navigate complex debt situations and provide solutions.
Why do I Need a Bankruptcy Trustee?
Licensed Insolvency Trustees 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
Partnering with a Licensed Insolvency Trustee is crucial for navigating the complexities of insolvency. LITs empower you to take control of your financial future and make informed decisions that lead to a fresh start.
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 they end up filing a consumer proposal or personal bankruptcy for you. These bankruptcy trustee fees are based upon a tariff set by the Canadian Government and are paid out of the money you pay into a consumer proposal or a bankruptcy.
How are Bankruptcy Trustee Fees Calculated?
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.
The bankruptcy’s complexity and the assets involved determine the fees. The fees for a bankruptcy and consumer proposal are as follows.
Personal Bankruptcy Fees
Most personal bankruptcies in Nova Scotia, New Brunswick, and Prince Edward Island are summary administrations. Fees in a summary administration are 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 (if any) 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 counseling fees, filing fees, and administration costs.
Personal bankruptcy fees are not an additional upfront cost. Instead, the money you pay in your bankruptcy estate pay these fees.
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;
Consumer proposal fees form part of your monthly consumer proposal payment. These fees reflect the Licensed Insolvency Trustee’s services in negotiating, administering, and overseeing your consumer proposal.
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 summary bankruptcy. The costs associated with filing bankruptcy are based on an income test, called surplus income payments, and equity in realized 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.
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.
Can A Licensed Insolvency Trustee Help With Tax Debts?
Absolutely. Licensed Insolvency Trustees (LIT) can offer valuable assistance when dealing with tax debts. While tax debts can be overwhelming, LITs have the expertise to guide you toward effective financial solutions.
A Licensed Insolvency Trustee can evaluate your tax debt and financial situation to provide tailored strategies. They are authorized to negotiate with tax authorities to include tax debts in a consumer proposal, allowing you to repay a portion of your debt over time.
In severe tax debt cases, a LIT can help arrange for a fresh start through bankruptcy and halt collection actions to provide relief from aggressive tactics. Licensed Insolvency Trustees assist in navigating unpaid taxes, offering a path to debt relief and financial stability.
Can A Licensed Insolvency Trustee Help With School Loans?
Yes. A Licensed Insolvency Trustee can assist with certain student loans, provided you have been out of school for at least seven years. Licensed Insolvency Trustees offer expert guidance and explore all viable solutions to alleviate the burden of student loans.
If you meet the requirements, a LIT can include your student debt in a consumer proposal or bankruptcy, so you’ll only repay a portion of the outstanding debt. If you have been out of school for less than seven years, the debt must still be listed, but filing for a consumer proposal or bankruptcy does not automatically discharge government student loans.
While not every scenario qualifies for discharge, a Licensed Insolvency Trustee can help you make informed decisions regarding your financial obligations.
Can a Licensed Insolvency Trustee Stop My Wages From Being Garnished?
Yes. Licensed Insolvency Trustees can prevent wage garnishment by implementing formal debt relief strategies such as consumer proposals and bankruptcies. Wage garnishment ceases when you file a consumer proposal, forcing creditors to stop taking legal action.
An automatic stay is initiated when filing for bankruptcy, which ends wage garnishment immediately. Partnering with a Licensed Insolvency Trustee reduces the stress of wage garnishment and empowers you to reclaim control of your financial situation.
Can A Licensed Insolvency Trustee Help With Harassing Phone Calls?
Absolutely. Working with a Licensed Insolvency Trustee can put an end to harassing phone calls from creditors and grant you peace of mind. An automatic stay is implemented whenever you file for bankruptcy or a consumer proposal.
Since the LIT serves as your point of contact once you initiate a formal debt relief strategy, creditors must communicate with the LIT, prohibiting them from contacting you directly.
Is Working With a Licensed Insolvency Trustee Confidential?
Yes, a Licensed Insolvency Trustee will only disclose your information where they are required to as part of your filing. LITs follow a code of conduct and operate under strict ethical standards and legal guidelines to protect your privacy. While your personal and financial information is treated with the utmost confidentiality throughout the process, bankruptcies and consumer proposals are still a matter of public record.
Additionally, Licensed Insolvency Trustees must disclose any relevant information to creditors regarding your financial position. For example, if you tell the LIT you have money hidden in your mattress, they cannot ignore this information and must include those assets in proceedings.
Ultimately, LITs adhere to the ethical obligations of confidentiality and secure your information per privacy laws, giving you peace of mind to discuss your financial situation without fear of unnecessary disclosure.
Do Licensed Insolvency Trustees Only Work With Individuals?
No. Licensed Insolvency Trustees possess the knowledge and experience to tailor debt relief solutions to the unique needs of businesses and individuals alike.
LITs work with individuals through various debt relief options, such as consumer proposals and bankruptcies. They help businesses navigate restructuring, business Division 1 proposals, and insolvency solutions while assisting sole proprietors in managing business-related debts.
When Should I Consult With a Licensed Insolvency Trustee?
It’s advisable to consult with a Licensed Insolvency Trustee as soon as possible to ensure timely intervention.
Here are some examples of when to contact a Licensed Insolvency Trustee:
- You’re behind on payments or not able to make payments.
- You’re struggling with overwhelming debt.
- Debt repayment becomes unmanageable on your own.
- You need guidance on debt resolution options and strategies.
- You’re considering filing a consumer proposal or personal bankruptcy.
- Wage garnishment or other creditor actions are impacting your financial stability.
The sooner you consult with a Licensed Insolvency Trustee, the sooner they can recommend a suitable path to debt relief tailored to your financial situation.
How to Choose a Licensed Insolvency Trustee
Selecting the best Licensed Insolvency Trustee (LIT) is crucial for navigating the road toward debt relief and financial stability.
The following are considerations to help you make an informed choice:
- Credentials and Expertise – Ensure the LIT is licensed by the OSB and that they have extensive experience in various debt relief solutions.
- Personalized Approach – Seek a LIT who takes the time to understand your unique circumstances, tailors solutions accordingly, and provides resources to empower you to take charge of your financial situation.
- Transparency – Look for a LIT that offers transparent fee structures and communicates all relevant aspects of the process.
- Reputation – Research online testimonials, reviews, and business ratings to gauge the LITs reliability and commitment to client satisfaction.
Choosing the right Licensed Insolvency Trustee is pivotal to regaining a solid financial standing. Evaluating their credentials, expertise, client-centered approach, and reputation, you can confidently choose the best partner to lead you to a debt-free future.
Licensed Insolvency Trustee – Conclusion
Regardless if you are considering filing bankruptcy or a consumer proposal, you need to seek out the advice of a Licensed Insolvency Trustee. They will present you with all of your relevant debt relief solutions.
Licensed Insolvency 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. We offer our Licensed Insolvency Trustee services Saint John, NB; Fredericton, NB; Moncton, NB; Miramichi, NB; Truro, NS; Dartmouth, NS; and Charlottetown, PE.
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.