A Licensed Insolvency Trustee (LIT) is a federally regulated professional in Canada authorized to assist individuals and businesses in resolving their debt problems. Formerly known as Bankruptcy Trustees, LITs play a central role in the insolvency process, offering guidance, protection, and legally binding solutions to those facing financial difficulties. They act as impartial intermediaries, ensuring fairness for both debtors and creditors and are the only professionals in Canada legally allowed to administer bankruptcy or consumer proposals under the Bankruptcy and Insolvency Act (BIA).
In this blog, we will explore the roles and responsibilities of LITs, why you might consider working with one, how they are paid, and how they differ from other debt relief providers.
The Role of a Licensed Insolvency Trustee in the Insolvency Process
LITs are key players in helping individuals and businesses navigate the complexities of insolvency. Their responsibilities encompass the following:
1. Assessing Financial Situations
The first step in the insolvency process is understanding the financial challenges a person or business faces. An LIT evaluates income, expenses, debts, and assets to recommend the best action.
2. Providing Debt Relief Options
Based on their assessment, LITs may recommend one of the following legal solutions:
Consumer Proposal: A legally binding agreement to pay a portion of your debt or extend the repayment period.
Bankruptcy: A legal process to eliminate most debts when other options are not viable.
LITs explain the implications of these options and help debtors make informed decisions.
3. Acting as Administrators
If a debtor chooses bankruptcy or a consumer proposal, the LIT becomes the administrator of the process. This includes:
Filing necessary documents with the government.
Communicating with creditors.
Ensuring compliance with legal obligations, such as attending credit counselling sessions.
4. Protecting Against Creditor Actions
When you work with a LIT, they issue a Stay of Proceedings, which halts wage garnishments, collection calls, and lawsuits from creditors. This provides immediate relief to debtors.
5. Ensuring Transparency and Fairness
LITs are impartial professionals. While they help debtors resolve their financial issues, they also ensure creditors are treated fairly and receive as much of the owed debt as possible under the law.
Why Work with a Licensed Insolvency Trustee?
Choosing an LIT over other debt relief providers offers several advantages:
1. Expertise and Credibility
Licensed Insolvency Trustees are extensively trained and highly knowledgeable about Canadian insolvency laws. Their licensing are issued by the Office of the Superintendent of Bankruptcy (OSB), a branch of the federal government.
2. Comprehensive Solutions
Unlike unregulated debt consultants, LITs can offer legally binding solutions, such as consumer proposals and bankruptcies. They take a holistic approach to resolving debt, addressing immediate concerns and ensuring long-term financial stability.
3. Legal Protections
Only LITs can invoke a Stay of Proceedings, shielding you from creditor actions during the insolvency process.
4. Free Initial Consultation
Most LITs offer a free, no-obligation consultation to discuss your financial situation. This allows individuals to understand their options without financial risk.
5. Peace of Mind
Working with an LIT ensures that your case is handled professionally, ethically, and complies with Canadian law.
How Do Licensed Insolvency Trustees Get Paid?
The fees for a LIT's services are regulated by the OSB and are built into the bankruptcy or consumer proposal process.
Bankruptcy Fees
In a bankruptcy, the LIT’s fees are paid from the debtor's estate, which may include assets or income contributions. If the individual has no significant assets, the LIT's fees are covered by a tariff set by the government, or the LIT may ask for voluntary payments from the debtor.
Consumer Proposal Fees
A consumer proposal includes the LIT’s fees in the agreed-upon monthly payments with creditors. There are no upfront costs, and the fees are deducted from the debtor's payments.
The regulated nature of LIT fees ensures transparency and fairness for all parties involved.
Who Regulates Licensed Insolvency Trustees?
The OSB is the federal regulatory body overseeing LITs in Canada. The OSB is responsible for:
Licensing and supervising LITs.
Monitoring compliance with the Bankruptcy and Insolvency Act.
Investigating complaints against LITs.
Ensuring transparency and integrity in the insolvency process.
This strict regulatory framework ensures that LITs operate with professionalism and accountability, prioritizing the best interests of both debtors and creditors.
What are the Differences Between Licensed Insolvency Trustees and Other Debt Relief Providers?
Not all debt relief providers are created equal. Here’s how LITs differ from other professionals in the industry:
Licensed Insolvency Trustees | Debt Relief Providers | |
Legal Authority | Can administer bankruptcies and consumer proposals under the BIA | Cannot provide legal solutions |
Regulation | Federally regulated by the OSB | Often unregulated or loosely regulated |
Solutions Offered | Comprehensive, legally binding solutions | May offer debt consolidation or settlements without legal backing |
Creditor Protections | Can stop creditor actions via a Stay of Proceedings | Cannot provide legal protections from creditors |
Costs | Fees are regulated and included in the process | May charge high, unregulated fees upfront |
Choosing a Licensed Insolvency Trustee ensures you receive professional, regulated, and practical assistance, unlike many unregulated providers who may lack expertise or offer limited solutions.
Conclusion
A Licensed Insolvency Trustee is an invaluable resource for Canadians facing financial difficulties. As federally regulated professionals, they provide transparent, legally binding solutions to help individuals and businesses regain control of their finances. Whether through consumer proposals or bankruptcy, LITs offer a path to financial recovery while protecting the rights of all parties involved.
By choosing to work with an LIT, you ensure that your debt relief journey is guided by expertise, fairness, and compliance with the law. Whether you're feeling overwhelmed by debt or simply exploring your options, consulting an LIT is a crucial first step toward financial freedom.
If you would like a free consultation to discuss options for reducing your debt, contact Litvack Group today!
FAQs
1. How does an LIT differ from a debt consultant?
Unlike debt consultants, LITs are federally regulated, legally authorized to provide debt solutions, and can offer legal protections like a Stay of Proceedings.
2. Are consultations with LITs free?
Yes, most LITs offer free initial consultations to discuss your financial situation and potential solutions.
3. Can an LIT stop wage garnishments?
Yes, by filing for bankruptcy or a consumer proposal, a LIT can issue a Stay of Proceedings, which halts wage garnishments and other creditor actions.
4. How do LITs get paid?
LIT fees are regulated by the OSB and are included in the bankruptcy or consumer proposal process.
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