If you suddenly become insolvent, it can be confusing to understand whether you require a bankruptcy lawyer or a Licensed Insolvency Trustee. In this article, we will explain the role of a bankruptcy lawyer, and that of a Licensed Insolvency Trustee. Depending on your financial circumstances, we will help to determine which of the two professionals you require to gain debt relief. Most often, you will need a Licensed Insolvency Trustee. Here at Spergel, we have a team of experienced Licensed Insolvency Trustees that have helped over 100,000 Canadians begin fresh financial futures.
Do I need a bankruptcy lawyer?
Whether or not you may need a bankruptcy lawyer is a query we are commonly asked. In most cases, the short answer is no. In Canada, consumer proposals and bankruptcies are administered by Licensed Insolvency Trustees (LITs), not bankruptcy lawyers. By law, personal bankruptcy cannot be delivered by a lawyer, debt consultant, or accountant (unless they are also Licensed Insolvency Trustees). LITs are licensed federally by the Office of the Superintendent of Bankruptcy. This differs from the American system, where a bankruptcy lawyer or attorney will administer various forms of bankruptcy. In Canada, Licensed Insolvency Trutees are the only professionals legally able to file all forms of debt relief.
For personal insolvency, you need a Licensed Insolvency Trustee (LIT)
There are particular laws surrounding debt settlement in Canada. In particular, the Bankruptcy & Insolvency Act (BIA) dictates that insolvency proceedings can only be administered by Licensed Insolvency Trustees (LIT) who are experts in all things debt related. Meeting with a LIT for a free consultation should be the first step for anyone who is struggling with debt or exploring options to get out of debt. Your trustee will explore all possible options with you and ensure that you find the right solution for you. If bankruptcy is the best option, they will be able to guide you through the process. As officers of the court, they act in accordance with the BIA to ensure that all parties are treated fairly. They will help you to understand your legal obligations throughout the bankruptcy process and any consequences for failing to fulfil your obligations. If, in the rare case, your situation requires the support of a lawyer, your trustee will let you know.
What is the Bankruptcy & Insolvency Act (BIA), and why is it important?
The Bankruptcy & Insolvency Act regulates the settlement of debts through bankruptcy and consumer proposals. The Office of the Superintendent of Bankruptcy (OSB) is responsible for the administration of the BIA. This includes licensing and overseeing LITs, who are officers of the court, and have the knowledge and expertise to handle debt settlement. In accordance with the BIA, your Licensed Insolvency Trustee can administer solutions to reduce your debts legally. If you are interested in debt assistance, or bankruptcy is something you would like to avoid, a LIT is definitely your best resource. They receive extensive training in order to be able to best counsel you through the options best suited for your needs.
What is a bankruptcy lawyer?
It is a common misconception that Licensed Insolvency Trustees are a type of bankruptcy lawyer. In Canada, a lawyer who specializes in insolvency law is sometimes referred to as a “bankruptcy lawyer.” Usually, a lawyer who practices insolvency law deals with corporate insolvency, in the role of an advocate for a creditor or business. A bankruptcy lawyer’s purpose is to argue the position of their client. This differs from the role of a LIT, who ensures that all parties are treated fairly in accordance with the BIA. In exceptional circumstances, a LIT may consult a lawyer’s opinion for advice regarding a dispute or discharge hearing. These cases are extremely rare. Typically, personal insolvency proceedings do not require any involvement from lawyers.
A Licensed Insolvency Trustee will inform you of the procedures of bankruptcy and ensure that those rules are followed. When declaring bankruptcy in Canada, a LIT is the first, and most often the only, professional required. A bankruptcy lawyer is not what you are looking for. Canadian lawyers cannot initiate the bankruptcy process or file the necessary documentation. They are not licensed to administer or participate in formal insolvency proceedings in any way. This is partly because the bankruptcy system in Canada is designed to save money. Lawyers bill by time spent, unlike LITs whose fees are set by the BIA, and their assistance should only be required where there is a contentious case.
Licensed Insolvency Trustees are well-versed in bankruptcy law
Licensed Insolvency Trustees are required to take a three-year bankruptcy course as part of their training and accreditation. This provides a deep understanding of the Bankruptcy and Insolvency Act and all other laws pertaining to personal insolvency. They must pass written exams and a final oral exam before a board that includes a member of the OSB, a bankruptcy lawyer, and a Licensed Insolvency Trustee. The exams are very challenging, and only a small percentage will pass and obtain a license on their first attempt. Only Licensed Insolvency Trustees are qualified and licensed to administer a consumer proposal or to act as a trustee in bankruptcy. A practicing “bankruptcy lawyer,” on the other hand, is not authorized to perform these functions.
There are two formal options for personal debt settlement in Canada: consumer proposals or bankruptcy. Consumer proposals are a great alternative to bankruptcy by allowing you to maintain control of your assets and still repay less than you owe, free of interest. They can allow you to reduce your debt by up to 80%. At Spergel, our consumer proposals have a 99% acceptance rate. Both types of debt resolution must be filed under the Bankruptcy & Insolvency Act and administered by a LIT.
In most cases, insolvency proceedings are straight-forward, following procedures outlined in the BIA. It is a relatively simple matter of creditors requiring due payment. In place of a traditional court hearing, the rules and regulations of the BIA allow a person to go through the debt settlement process without ever having to consult a bankruptcy lawyer or appear in court. After a bankrupt fulfils their bankruptcy duties, they are typically discharged from the process automatically. Learn more about life after bankruptcy.
What is the role of a Licensed Insolvency Trustee?
At Spergel, our Licensed Insolvency Trustees are able to:
- Review your financial situation and present you with ALL available debt relief options
- Provide financial counselling to help you get back on track
- Discuss possible alternatives to declaring bankruptcy
- Ensure that all parties are treated fairly and all creditors’ claims are legitimate
If you file a consumer proposal or bankruptcy, your Trustee will:
- Notify your creditors
- Review and approve creditor claims
- Prepare all necessary documents
- Ensure you know what to expect and understand the rules and procedures
- Oversee the fair and equal distribution of all assets held in trust
- Ensure that you complete your duties
- Apply for your discharge upon completion
By law, a Licensed Insolvency Trustee must act and enforce fairness for all parties. This begins with your initial consultation. Your LIT has a legal responsibility to review your financial situation and explain all possible debt solutions. This ensures that you are able to make an informed decision about your next steps. Whatever you decide, your LIT will follow the rules and regulations laid out by the Bankruptcy & Insolvency Act. Rules that will ensure the insolvency process is fair to you and your creditors.
Do I need a Bankruptcy Lawyer or a Licensed Insolvency Trustee?
By now, you should understand that there is no “bankruptcy lawyer” designation within the Canadian legal system. Canadian lawyers are not licensed to administer bankruptcy proceedings like US attorneys. Consider the following situations to help you identify who you need to see:
- You’re considering declaring bankruptcy and would like to know your options – you need a Licensed Insolvency Trustee.
- You’ve missed payments and your creditors are threatening you with legal action – you need a Licensed Insolvency Trustee.
- You owe money to the CRA and they are threatening to garnish your wages – you need to see a Licensed Insolvency Trustee.
- You are overburdened with debt and just don’t know what to do – you can meet with a Licensed Insolvency Trustee.
- You’re a creditor and need help understanding formal debt settlement and insolvency proceedings in Canada – you may wish to consult a bankruptcy lawyer.
Providing a positive solution to your insolvency situation
At Spergel, we will do everything in our power to assist our clients in understanding all of their debt relief options. Bankruptcy is generally the last resort, and there are often alternative solutions available. During a free initial consultation appointment, we will review your situation and present you with available options. We will answer all of your questions and provide you with the information you need to make an informed decision. There is no obligation or pressure to move forward with a particular solution. When you are ready, we will meet with you again to get the process started.
Get bankruptcy help that you can count on
At Spergel, we have been helping clients through personal bankruptcy for 30 years, and we will guide you through each step. We are here to ensure you find the right solution for you. During your free consultation with one of our trustees, we review all your options. Our highly trained and caring experts will review your finances and explore all possible options. If you are eligible for an alternative to bankruptcy, we’ll find that alternative. We can provide an in-depth explanation of how each type of debt solution will impact you. If you file personal bankruptcy, you could be debt-free in as little as 9 months. Whatever solution is right for you, we will be there with you every step of the way until you achieve your goal of debt freedom.
Book a free consultation today and take your first step towards financial freedom!