Losing sleep over how much debt you’re accumulating, and you’re not sure where to turn?
Bankruptcy Canada has credit counselors and Licensed Insolvency Trustees (LIT) that can help outline what options you have, and counsel you on what to do to get out of debt and get your life back.
If you’re looking to file a consumer proposal or file for bankruptcy, you might be concerned that you won’t be able to pay the fees associated with your Trustee.
After reading the following guide, you’ll be able to understand how LIT’s are paid, and you’ll be able to rest assured that the Trustee will not be an added burden to your existing debt.
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What is a Licensed Insolvency Trustee?
A Canadian Licensed Insolvency Trustee (LIT) is commonly called a Trustee and is an impartial officer of the court.
Trustees are licensed by the Office of the Superintendent of Bankruptcy and are not simply debt consultants.
They are the only persons who can file bankruptcy or a consumer proposal for a person.
Additionally, they do not work for either the debtor or the creditor but are rather obligated to respect each party and offer the best option for all involved.
Trustees are legally allowed to prevent creditors from harassing you via phone calls and mail, can stop wage garnishes, and can legally cease collections that are being made against your debt.
To become a LIT, an individual must undergo training and pass both a written and oral examination and be investigated by the RCMP.
On average, fewer than 50% of individuals pass the written examination on the first try, even with exceptional training.
In addition, trustees must pass a three-year bankruptcy law course, and continue their ongoing education s they work as a Licensed Insolvency Trustee.
These individuals are federally regulated professionals who work to provide debt advice and services to those seeking to claim either a consumer proposal or bankruptcy.
Who do Licensed Insolvency Trustees for work for?
So, if a trustee’s main focus is to help individuals, do they work directly for person in debt?
No.
They are impartial to both the creditor and debtor, and they are not government employees.
They work for themselves or through a firm of trustees so that they can be entirely impartial to each party involved.
Being independent from the government ensures that the insolvency process of Canada is fair.
Since Trustees are not government-employees, they have free reign to work in other areas of finance as well.
Many LITS have a background as a CPA, and continue working as one, even after they become licensed.
Others are licensed credit counselors who can help individuals through debt processes other than bankruptcy or consumer proposals.
Their goal is typically to reduce the debt of individuals, but when they perform their role as a Licensed Insolvency Trustee, they are ethically and legally required to perform a service that is most fair to creditors and debtors alike.
Regulations
When a Trustee is licensed, the Office of the Superintendent of Bankruptcy (OSB) continues to be responsible for monitoring and regulating LITs, as defined in the Bankruptcy and Insolvency Act (BIA) of Canada.
Parliament is responsible for reviewing, regulating, and updating the BIA regularly.
Regulations, policies, and procedures that are governed by the OSB include defining rules around surplus income limits and court proceedings for bankruptcy.
While these policies change, the Trustee is responsible for keeping current on these expectations to stay in accordance with any changing procedures and policies.
How are Licensed Insolvency Trustees paid?
If a Trustee is overseen by the government, are they paid by them?
No.
Technically speaking, LITs are paid by the creditors involved with the consumer proposal or the bankruptcy, not directly from the person in debt.
The Trustee is paid out of the proceeds from the bankruptcy claim.
It is a common misconception that once you claim bankruptcy, you no longer have payments to be made on your debt.
While you are admitting you are insolvent, there are often strict regulations that go along with your bankruptcy that requires you to make payments into your bankruptcy.
Another way that a LIT may be paid is by the assets sold from the bankruptcy.
All funds that are to be allocated to the creditors are collected by the trustee and kept on account.
At the end of a bankruptcy, which takes on average nine months to be discharged, there is a government-established formula for how funds are handled.
The government fees are paid first, followed by the trustee, and finally divided up between payments to the owed creditors.
Because Trustees are mandated by the government, your fees will remain the same regardless of which Trustee you use during an insolvency scenario.
Can I hire a Licensed Insolvency Trustee directly?
While you may choose the LIT you work with as you navigate through the process of filing a consumer proposal or bankruptcy, you do not directly hire a trustee.
Statutory duties as outlined by the Office of the Superintendent of Bankruptcy of LITs prevent them from acting as advocates for debtors, and can not be directly hired by the debtor.
Having said this, when you need a trustee, you do not need a referral.
Instead, you can schedule a meeting with your chosen trustee.
When you do meet with them, you should never be required to pay a LIT when you are meeting with them to file for a bankruptcy claim.
Any reputable trustee in Canada offers free initial consultation.
More often than not, individuals who meet with a LIT do not end up needing to file for bankruptcy, but instead go an alternate route to help reduce their debt.
Oftentimes, when you are overwhelmed with creditors calling non-stop, you may forget that you have an abundance of resources and options long before needing to file for a consumer proposal or bankruptcy.
If you find this is true, a LIT may refer you to a credit counselor or may begin a separate process to reduce your debt while still helping you maintain or improve your credit score.
What bankruptcy services does a LIT provide?
If you find that you’re seeking to have a bankruptcy claim filed, your first call should be to a Licensed Insolvency Trustee.
They are the only persons legally allowed to administer bankruptcy (and other insolvency procedures, such as consumer proposals) within Canada.
What exactly are the services that a Trustee is in charge of during a bankruptcy?
Once you and your Trustee establish that you would like to move forward with your Canadian bankruptcy, the Trustee is responsible for several steps after you sign documents to begin the bankruptcy claim.
- The LIT will mail out bankruptcy documents to each of your creditors within five (5) business days of you signing the documents. At this time, if a creditor calls you, you can refer to them your Trustee;
- Your trustee will obtain a monthly Statement of Income and Expenses from you moving forward after providing you with the necessary forms to move the bankruptcy claim forward;
- Within the first two months following the bankruptcy claim, you will meet for a financial counselling session at the office of your Trustee. A second counselling appointment is held at the seventh month mark. Without these sessions, you can not be discharged from your bankruptcy;
- Following the second counselling session, your LIT will put together a report on how you conducted yourself during the bankruptcy. As long as you performed each duty requested of you, your bankruptcy should be discharged at the end of nine months;
- Finally, your trustee will send you a Certificate of Discharge which signifies that any prior eligible debts have been dealt with. At this point, you and your trustee likely have no further responsibilities until your bankruptcy is removed from your credit report.
During this process, the Trustee will also be working directly with your creditors to ensure their rights are protected.
Since a LIT is an impartial office of the court, they will fully investigate the debtor’s affairs, including all assets and debts, and will be responsible for taking any remaining credit cards from the debtor.
Debt relief options
There are multiple debt relief options available to individuals, but if you are seeking either a consumer proposal or bankruptcy, you must go through a LIT.
It’s fairly common for non-licensed debt counselors to sell those in debt services that will not fully remedy their finance scenario.
While anyone can offer debt relief advice, there is a significant difference between Trustees licensed by the federal government and individuals who simply charge fees to help you with your monthly budget or offer debt reduction services that are not legally binding.
If you are looking to use a Licensed Insolvency Trustee, you should be aware that a reputable trustee will not charge you to meet with them, and there is no obligation to follow through with a consumer proposal or bankruptcy if you discover that you have other debt relieving options available.
Contact us at Bankruptcy Canada if you would like to set up a no-obligation meeting with a Licensed Insolvency Trustee.
