How Does a Licensed Insolvency Trustee Get Paid?

Understanding the Compensation of a Licensed Insolvency Trustee

If you are at a juncture where you need assistance to manage your debts, you may wonder, “How does a Licensed Insolvency Trustee get paid?” In the realm of debt management solutions, only a Licensed Insolvency Trustee (LIT) is legally authorized and recognized by the federal government in Canada to assist individuals with debt solutions, including Consumer Proposals and bankruptcy.

The following article aims to shed light on the rules determining the payment of a Licensed Insolvency Trustee.

Foundational Rules Guiding Licensed Insolvency Trustee Fees

Licensed Insolvency Trustees adhere to stringent calculations and rules while administering a personal bankruptcy or Consumer Proposal. Their fees are calculated and derived from the funds paid into each individual bankruptcy estate or Consumer Proposal. It is essential to understand that Trustees are not allowed to set their own fees and rates.

In the majority of bankruptcies and all Consumer Proposals, the Licensed Insolvency Trustee’s fees are based on a tariff set by the federally legislated Bankruptcy and Insolvency Act. Unlike other professionals, working with a Licensed Insolvency Trustee does not incur a “fee for service.” This implies that there will be no additional invoices for any phone calls or support provided during the process.

Cost Implications of Filing Bankruptcy

Upon consultation with a Licensed Insolvency Trustee or Estate Manager, if it is established that your income does not have any surplus income requirements and you have not been bankrupt before, you could generally expect to pay around $2,300 for a personal bankruptcy administration.

Most people are unable to pay the entire cost of bankruptcy upfront. Therefore, this amount is usually broken down into manageable chunks, with $500 paid initially and eight monthly payments of $225 during the nine-month period of bankruptcy.

In situations where a person’s income allows them to repay a significant portion of their debts and avoid filing bankruptcy, a Consumer Proposal debt consolidation often emerges as a more suitable debt solution.

Cost Implications of Making a Consumer Proposal

Consumer Proposals are not straightforward when it comes to cost implications as they depend entirely on the circumstances of the person filing. The tariff-based Consumer Proposal fees are drawn from whatever your creditors stand to realize under the actual Consumer Proposal. This essentially means that the cost is borne by the creditors, and there is no additional payment required from the person making the Consumer Proposal, apart from the amount offered as repayment on the debts via the Consumer Proposal itself.

For instance, if your proposal is for $300 per month for 36 months, you need to pay the first $300 payment at the time of filing your official Consumer Proposal documents, and this counts towards the total amount you need to pay. Thereafter, you just continue making the payments until the proposal is completely paid off. There is no separate amount due to the Trustee at any point.

Additional Costs

During the process of personal bankruptcy or a Consumer Proposal, there are other costs and fees that need to be paid. These costs are paid directly by your Licensed Insolvency Trustee and covered as part of any monthly payments you may make. These costs may include:

 

  • Government filing fees to formalize bankruptcy or Consumer Proposal;
  • Financial counselling sessions;
  • Preparation and filing of income tax returns;
  • Personal Property Registry Search charges;
  • The Statement of Receipts and Disbursements.

 

The final accounting prepared by a Licensed Insolvency Trustee is called a “Statement of Receipts and Disbursements”. This document details all money received and paid in each bankruptcy or Consumer Proposal proceeding and is reviewed and approved by the Government of Canada branch that regulates Licensed Insolvency Trustees. A Licensed Insolvency Trustee is paid only after receiving approval from the Office of the Superintendent of Bankruptcy.

A copy of the Statement of Receipts and Disbursements is provided to the individual, as well as creditors who have a claim in their bankruptcy or Consumer Proposal. This process is an integral part of legal debt help legislation and works to ensure complete transparency for consumers.

An Example of Licensed Insolvency Trustee Fees in a Personal Bankruptcy

The exact rules that control how Licensed Insolvency Trustee fees are determined in most personal bankruptcies can be found here. Below is a basic breakdown of these approximate fees and costs, as you might see on a Statement of Receipts and Disbursements:

$2,300 – Paid over nine-month period of personal bankruptcy by the individual filing bankruptcy

Paid to Licensed Insolvency Trustee:

 

$100 Administrative Allowance

$170 Counselling Session Costs

$1,485 Licensed Insolvency Trustee’s Allowable Fee

$1,755 – Total Paid to Licensed Insolvency Trustee

Other Charges Paid:

 

$78 Federal Government Filing Fee Paid

$208 Levy Paid to Office of the Superintendent of Bankruptcy

$88 Government GST Payable

$171 Possible Creditor Distribution

Total: $2,300

In the above example (and most cases), the $2,300 accounts for all the services provided to you by your Licensed Insolvency Trustee and their support team as mandated by bankruptcy legislation.

Understanding the Processes of Bankruptcy or Consumer Proposal

It is important to understand the processes of bankruptcy and Consumer Proposals by consulting directly with a Licensed Insolvency Trustee. Legal debt solutions can be complex and the law is an ever-changing body of statutes and precedents. As no two situations are identical, you need to gain information that is relevant and accurate to your specific situation and circumstances.

Be cautious of “facts” that you hear from non-Trustee professionals. While they may be well-intended, bank employees or collection agents, for example, are not qualified to assess the situation of a person contemplating making a Consumer Proposal or filing bankruptcy.

The Path to Debt-Free Solutions

Researching and comparing solutions to help you manage your debts can feel overwhelming. If you’re having financial troubles or want to manage your debts more effectively, speaking confidentially with a federally-Licensed Insolvency Trustee is a commitment-free, no-cost way to get the facts and answers to your questions about debt options to help you get back on track with a financial fresh start.

From debt consolidation to Consumer Proposals to bankruptcy, you may have several debt solutions that could work for your individual situation. A Licensed Insolvency Trustee can help you assess your situation and evaluate all of your options during a free debt consultation. The choice then is yours on how to move forward.

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