Debt Relief Experts
When facing debt problems, it is important to have a clear understanding of who you need to go to for help. In Canada, individuals in need of debt relief would go to a licensed insolvency trustee to eliminate their unsecured debts. There are certain instances, however, where you will need the help of a bankruptcy lawyer.
In this post, we explain the key differences between a bankruptcy lawyer and a licensed insolvency trustee. These two professionals play distinct but interconnected roles in the bankruptcy process.
Table of Contents
What is a licensed insolvency trustee?
A licensed insolvency trustee (LIT) is federally regulated and provides advice and 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 and regulates the insolvency industry in Canada.
A licensed insolvency trustee is an officer of the court, and their main function is to ensure that a bankruptcy or consumer proposal follows the processes outlined in the Bankruptcy and Insolvency Act.
Licensed insolvency trustees are responsible for ensuring that creditors and the insolvent individual are treated fairly, and that the bankruptcy process is conducted in accordance with the law. LITs work for all the stakeholders in a personal bankruptcy or consumer proposal filing. These include both the creditors and debtors. They are also responsible for administering bankruptcy estates, investigating claims, and distributing assets. A licensed insolvency trustee is also a consumer proposal administrator and are the only professional legally allowed to file a Canadian consumer proposal for a debtor.
When it is necessary, trustees work closely with bankruptcy lawyers to ensure that the bankruptcy process is conducted properly. Trustees are required to report to the creditors and occasionally the bankruptcy court, and they are held accountable for any actions they take during the insolvency process.
What is a bankruptcy lawyer?
A bankruptcy lawyer is a legal professional who specializes in insolvency law and helping their 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 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. But individuals looking for personal debt management advice and solutions will work with licensed insolvency trustees in Canada.
What is bankruptcy law in Canada?
The Bankruptcy and Insolvency Act (BIA) is the bankruptcy law in Canada. It is designed to allow an honest but unfortunate debtor to obtain relief from their debts. It also allows for creditors to be treated equally and fairly. The BIA sets out rules, processes, and standards that all parties must follow, and it is the licensed insolvency trustee who manages the process. Both bankruptcy and proposal law is contained in the BIA. To become a Licensed Insolvency Trustee, you must be knowledgeable and competent in bankruptcy law and pass several exams and an oral board made up of an LIT, bankruptcy lawyer and representative of the Office of the Superintendent of Bankruptcy.
The Bankruptcy and Insolvency Act provides debtors with protection from legal actions taken by their creditors, such as wage garnishments, asset seizures or frozen bank accounts. It also stops any legal actions that have already started taking place.
When would you need a licensed insolvency trustee?
A licensed insolvency trustee assists in making informed choices about how to deal with consumer debt such as credit cards, income tax debt, personal loans, and unsecured lines of credit, judgment debts from lawsuits, and even some student loans. The process begins with a free consultation and debt assessment to discuss your financial situation and review all your debt relief options. Legally, an LIT is required to tell you all your debt relief options which can include budgeting, credit counselling, debt consolidation, consumer proposals, and as a last resort, to file bankruptcy.
If you decide to file a bankruptcy or consumer proposal, part of the insolvency process includes two financial counselling sessions with a certified credit counsellor to work on budgeting and credit rebuilding after your discharge.
When would you need a bankruptcy lawyer?
There are times in the bankruptcy process where a creditor or a bankrupt individual would need a lawyer to advocate for them or to help them prepare and file materials for the Court.
For example, if a creditor is opposing a bankrupt’s discharge, the credit could look to a bankruptcy lawyer to assist them with that process and the court hearing. As a bankrupt, if a creditor is opposing your discharge and the matter is complex, it is advisable to obtain the services of a bankruptcy lawyer to represent you at court. Your Licensed Insolvency Trustee will advise you on whether you should have outside legal counsel represent you in court.
Another instance would be if you had a failed consumer proposal filing, but you wanted to revive the proposal to deal with your debts. In this case, you would need court approval to do so, and you would hire a bankruptcy lawyer to assist you with that 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.
Beware of unlicensed debt consultants
Hopefully, by now you have a good understanding of bankruptcy lawyers and licensed insolvency trustees, and which professional can help you depending on your needs. I will caution that there are many seemingly reputable companies claiming to be able to help you deal with your debts. They primarily sell consumer proposals as the solution. Know that only a licensed insolvency trustee is licensed, as a consumer proposal administrator, to administer a proposal. Unlicensed debt consultants and credit counsellors cannot help you with filing a consumer proposal. If you are making payments under a proposal agreement, ensure all your payments are made directly to the licensed insolvency trustee and that payments do not start until your proposal is filed with the government.
Credit counselling agencies offer what they call a Debt Management Plan (DMP), and while this may be a solution for some people with small debt problems, know that you must repay 100% of the debts you owe, plus fees, and that this plan does not offer creditor protection. It may also not deal with all your debts.
Before agreeing to work with any debt professional, always ask for their credentials and verify whether they are in fact licensed to provide the services they are claiming.
If you are struggling with your debts, contact a licensed insolvency trustee today to discuss all your repayment options in a free consultation.
