What does a Licensed Insolvency Trustee do?

Introduction: What is a Licensed Insolvency Trustee?

When Canadians start searching for help with their debt, one question often comes up first: what does a Licensed Insolvency Trustee do?

A Licensed Insolvency Trustee (previously referred to as a Trustee in Bankruptcy) is a federally regulated professional who helps individuals and businesses resolve debt problems. They assess financial situations, explain debt relief options, communicate with creditors, and guide people through federally regulated processes that helps them address debt and regain control of their finances.

Most importantly, a Licensed Insolvency Trustee is the only debt professional legally authorized to file consumer proposals and bankruptcies under Canadian law.

This article goes over what a Licensed Insolvency Trustee does, how they are regulated in Canada, and why working with one is an important step towards financial stability.

What is a Licensed Insolvency Trustee?

A Licensed Insolvency Trustee (LIT) in Canada is a professional authorized under federal law to help businesses and individuals resolve unmanageable debt problems. 

Are Licensed Insolvency Trustees government regulated?

Yes. LITs operate under the Bankruptcy and Insolvency Act, Canada’s federal legislation governing insolvency proceedings. They are licensed and regulated by the Office of the Superintendent of Bankruptcy, which ensures LITs follow strict legal and ethical standards.

Licensed Insolvency Trustees must:

• Complete extensive training and examinations
• Meet professional licensing requirements
• Follow strict rules and standards of practice
• Adhere to a formal code of ethics
• Remain accountable to the Office of the Superintendent of Bankruptcy

In practical terms, this means that when you work with an LIT in Canada, you can trust that you are working with a qualified professional whose role is highly regulated. Unlike other debt advisors, only LITs can legally file and administer proposals and bankruptcies in Canada.

What does a Licensed Insolvency Trustee actually do?

If you’re wondering what a Licensed Insolvency Trustee does, you may assume the answer is simply, “file bankruptcy.” While that’s part of the role, LITs’ responsibilities are broader, beginning with fully understanding your current financial situation. Debt help from an LIT involves guiding you through all of your options and helping you to choose the right solution for your needs.

LIT services in Canada typically include:

Reviewing your financial situation

Debt help from an LIT starts with a full understanding of your finances, including:

• The cause of your insolvency
• Income and monthly household expenses
• Credit cards, loans, taxes and other debts
• Assets such as vehicles and property

This review helps the LIT determine which debt relief options in Canada may be a solution.

Explaining all debt relief options

A Licensed Insolvency Trustee must explain all non-statutory and statutory debt relief options with you, which may include:

• Budgeting advice (increasing income, reducing expenditure)
• Consolidation loan
• Debt management plan
• Consumer proposal
• Bankruptcy

Their role is to explain the advantages, disadvantages and  implications of each debt relief option to you.

Filing consumer proposals

Consumer proposals are one of the most common debt relief solutions in Canada provided by LITs. During this process, a trustee prepares and files the proposal with creditors, outlining a plan to repay part of the debt over time. If creditors accept the proposal, it is legally binding.

Administering bankruptcies

If it is determined that bankruptcy is the appropriate solution, the LIT manages the process from start to finish, including:

• Filing bankruptcy documentation
• Sharing information with creditors
• Reviewing your reports on your income and expenses
• Handling the sale of any non-exempt assets
• Distributing any available funds to your creditors
• Issuing your bankruptcy discharge
• Ensuring the legal process is followed

Communicating with creditors

Once a bankruptcy or consumer proposal has been filed, the trustee deals directly with your creditors on your behalf. Collections calls and any inquiries are directed to the LIT, helping reduce your stress.

Ensuring legal compliance

All insolvency processes must comply with Canadian law. Licensed Insolvency Trustees ensure all documentation and processes follow the Bankruptcy and Insolvency Act.

Providing mandatory credit counselling

Financial counselling is a required component of LIT services in Canada. These counselling sessions focus on:

• Developing and understanding budgeting and spending habits
• Using credit responsibly
• Setting and achieving financial goals
• Warning signs of financial difficulty
• Rebuilding and maintaining a credit rating

The purpose of credit counselling is to prevent future financial challenges, help with financial rehabilitation and support long-term stability.

Can a Licensed Insolvency Trustee help without filing bankruptcy?

Some people may assume that speaking with an LIT automatically involves filing for bankruptcy.

However, having a consultation with a Licensed Insolvency Trustee does not mean filing right away – it is simply the first step in reviewing your financial situation and all available options.

In fact, an LIT is required to review all regulated debt relief options in Canada – not just bankruptcy.

One common bankruptcy alternative in Canada is a consumer proposal. This allows individuals to repay a portion of their debt through affordable monthly payments, allowing them to keep their assets and avoid bankruptcy.

LIT vs Debt Consultant: What’s the difference?

Canadians searching for debt relief help may come across different types of financial advisors. Understanding the difference between an LIT and a debt consultant is essential in determining the right solution for your unique circumstances.

Licensed Insolvency Trustees

The most important distinction between an LIT and a debt consultant in Canada is that LITs are federally regulated professionals. This means that they:

• Are regulated by the Office of the Superintendent of Bankruptcy
• Are required to follow strict legal and ethical rules
• Can legally administer consumer proposals and bankruptcies
• Can legally stop collections and other creditor actions after filing

Debt consultants

Debt consultants or debt advisors may offer budgeting advice, but they are not government licensed. This means that they:

• Are not regulated under the Bankruptcy and Insolvency Act
• Are not authorized to file consumer proposals or bankruptcies
• Cannot legally provide protection from creditors

Why does having a Licensed Insolvency Trustee matter?

Why use a Licensed Insolvency Trustee to manage your debt? Working with an LIT in Canada provides legal protections that are not possible through informal debt solutions.

Legal protection from creditors

Once an LIT files your chosen debt relief option, a stay of proceedings takes effect. This means you have legal protection from collection actions, including:

• Wage garnishment
• Lawsuits related to the debt
• Collection calls and letters

Consumer protection through federal oversight

Unlike other debt consultants, Licensed Insolvency Trustees operate under federal regulation and oversight. This ensures that no matter which debt relief option you opt for, the process is transparent and you are treated fairly from start to finish.

Because LITs operate within a federally regulated system, there is also accountability, as their work is monitored by the Office of the Superintendent of Bankruptcy, and consumers can file complaints if issues or concerns arise.

What happens during a free consultation?

The purpose of a Licensed Insolvency Trustee consultation is to help you understand your financial situation and explore possible solutions in a supportive, non-judgemental environment. 

During a free debt consultation, you can expect:

• A confidential, comprehensive financial review of your income, debt, and assets
• A clear explanation of all of your options in plain language
• Honest answers about timelines, payments, and potential impact to your credit
• A plan to move forward that is realistic and manageable

Most importantly, a debt consultation is your opportunity to ask questions, and there is no obligation to proceed with a formal solution until you are ready.

When should you speak to a Licensed Insolvency Trustee?

Feeling overwhelmed by debt can happen very quickly – working with a Licensed Insolvency Trustee in Canada sooner rather than later may give you greater options.

You may want to speak to an LIT when:

• You can no longer afford your debt payments or minimum payments are no longer manageable
• You are receiving collections calls or legal notices from your creditors
• You find yourself relying on credit cards or loans to cover basic living expenses
• You are facing pressure from the Canada Revenue Agency
• You are at risk of wage garnishment

Financial stress can affect every aspect of your life, including taking a toll on your mental health and straining relationships. Waiting too long to address these hardships can limit available debt relief solutions; an early conversation with an LIT can provide clarity and help you understand all of your options before the situation escalates.

Get trusted, regulated debt advice

Understanding what a Licensed Insolvency Trustee in Canada does is an important step towards finding the right support when debt becomes overwhelming.

LITs are federally regulated professionals who help individuals and businesses navigate through serious debt problems through structured, legal solutions. They are required to provide transparent, fair advice and ensure that all processes follow Canadian law.

Seeking help from Licensed Insolvency Trustee does not necessarily mean that you are committing to a formal debt solution. It’s about gaining a better understanding of your current financial situation and exploring the options available to you. Getting advice early can provide you with clarity, reduce uncertainty, and may prevent your financial situation becoming worse.

If you’re searching for a Licensed Insolvency Trustee near you or are exploring ways to get debt relief in Canada, start with a conversation with Bromwich+Smith.