What is the Licensed Insolvency Trustee’s role in a Bankruptcy or Consumer Proposal?

Canadian insolvency legislation exists to help honest, but unfortunate consumers recover from unmanageable debt situations and ensure creditors can recover a fair portion of the debts they’re owed in a reasonable timeframe. Helping to unite these seemingly opposed objectives is the Licensed Insolvency Trustee.

The role and functions of a Licensed Insolvency Trustee are understandably confusing for those who are new to the insolvency process. They represent neither debtors nor creditors. Rather, they are licensed by the Office of the Superintendent of Bankruptcy (OSB) to administer proceedings under the Bankruptcy and Insolvency Act (BIA).

Everything a Licensed Insolvency Trustee does throughout the insolvency process is meant to protect the integrity of the process; ensure a fair, equitable, and reasonable outcome for debtors, creditors, and regulators; and preserve the integrity of the federal insolvency system. Let’s take a look at some of their most important responsibilities.

Review your financial situation and explain your options

Nearly every Bankruptcy or Consumer Proposal begins with a Free Confidential Consultation. This initial conversation is essential for the Licensed Insolvency Trustee to understand your financial situation, challenges, and objectives — and the options available to you.

There are numerous factors that could influence which debt solution would be most appropriate given your unique situation and goals. The Licensed Insolvency Trustee will explain these in detail and offer a recommendation on which they believe would be most cost-effective, least disruptive, and offer the best chance of lasting debt relief.

From here, it’s up to you to weigh the pros and cons of each option (e.g. consolidation loans, debt management plan, Bankruptcy, Consumer Proposal, etc.) and decide how you want to move forward.

File your Life-Changing Debt Solution

If you choose to move forward with a formal insolvency solution like a Bankruptcy or Consumer Proposal, a Licensed Insolvency Trustee is the only professional who can facilitate this process.

Bankruptcy

If you choose to file a Bankruptcy, the Licensed Insolvency Trustee is responsible for collecting and verifying all your personal and financial information and filing your documents with Office of the Superintendent of Bankruptcy. This information includes your income, assets, debts, marital status, number of people in your household, etc.

Consumer Proposal

If you choose to file a Consumer Proposal, the Licensed Insolvency Trustee will assist with drafting a fair debt settlement offer based on your current income and assets and present this to your creditors. If your creditors reject this offer, the Licensed Insolvency Trustee may assist you with amending the proposal (provided it still fits your budget) and re-submit. Once 50 percent (by dollar value) of your creditors vote to accept the proposal there will be a 15-day waiting period prior to a deemed court acceptance.

Ensure that you fulfill your duties

Both Bankruptcy and Consumer Proposals are legal proceedings under the BIA. In exchange for the protections and debt relief these options provide, consumers must comply with certain rules and statutory duties. If you fail in any of your duties, the Licensed Insolvency Trustee must oppose your discharge or refuse to issue a certificate of full performance.

Bankruptcy Duties Include

• Disclose all assets and deliver non-exempt property to the Licensed Insolvency Trustee for liquidation.
• Surrender all credit cards to the Licensed Insolvency Trustee for cancellation.
• Complete and submit all paperwork requested by the Licensed Insolvency Trustee in a timely fashion.
• Complete and submit monthly income and expense statements to the Licensed Insolvency Trustee.
• Attend two financial counselling sessions with a BIA Insolvency Counsellor.
• Attend meeting of creditors if requested or required.
• Attend all required examinations by the Official Receiver if requested or required.
• Submit all tax information required for the Licensed Insolvency Trustee to complete tax returns for the year you are bankrupt and the year prior if outstanding.
• Keep the Licensed Insolvency Trustee apprised of any changes to your living situation or place of residence throughout the duration of your Bankruptcy.

Consumer Proposal Duties Include

• Fully disclose all personal financial information including income, assets, and debts so the Licensed Insolvency can assist with drafting a fair and affordable settlement for your creditors.
• Make all proposal payments on time and in full. Three subsequent missed payments will result in the Licensed Insolvency Trustee annulling your proposal.
• Attend two mandatory financial counselling sessions with a BIA Insolvency Counsellor.
• Attend meeting of creditors if requested or required.
• Respond to all requests for information from the Licensed Insolvency Trustee in a timely fashion.

Liquidate assets, collect surplus income payments, and distribute funds to creditors (Bankruptcy)

The crux of every Bankruptcy proceeding is surrendering non-exempt assets — or paying the equity value over and above the exemption amount — and any required surplus income payments to the Licensed Insolvency Trustee.

The Licensed Insolvency Trustee is responsible to:

• Verify all required assets have been surrendered as required.
• Liquidate (sell) assets and distribute the proceeds to your creditors on a priority basis.
• Calculate your surplus income requirements at two points throughout your Bankruptcy: Once prior to filing the Bankruptcy, and once a month prior to your anticipated discharge date.
• Collect any required monthly surplus income payments and distribute to your creditors on a priority basis.

Collect payments and distribute funds to creditors (Consumer Proposal)

One of the most significant benefits of a Consumer Proposal is that it consolidates potentially numerous debts into a single monthly payment without having to give up control of non-exempt assets. Rather than paying your creditors, you instead pay the Licensed Insolvency Trustee. They are then responsible to distribute the funds to your creditors on a priority basis. 

Ensure creditors comply with the stay of proceedings

Once the Licensed Insolvency Trustee submits your Bankruptcy or Consumer Proposal documents to the Office of the Superintendent of Bankruptcy, a Certificate of Assignment or Certificate of Filing is issued. This document puts in place an immediate stay of proceedings — halting any current collections activity, court judgements, and wage garnishments on applicable debts. It also prevents creditors from pursuing any future collections actions and court judgements for the duration of your insolvency (provided you continue to fulfill your duties).

If creditors impacted by this stay of proceedings attempt to contact you, the Licensed Insolvency Trustee is responsible for reporting any concerns to the Office of the Superintendent of Bankruptcy. Likewise, the Licensed Insolvency Trustee is also responsible to report transgressions on your part which may void the stay of proceedings (e.g. missing three successive Consumer Proposal Payments).

Provide financial counselling

Both Bankruptcy and Consumer Proposal proceedings require you attend two financial counselling sessions.

During these sessions, the counsellor will:

• Review past financial behaviours (e.g. overspending, under saving, etc.) that may have led to your insolvency
• Review the symptoms and warning signs of problem debt and how to spot them before the situation spirals out of control
• Discuss budgeting and other financial management techniques to help you avoid debt troubles moving forward
• Help you develop an action plan to rebuild your credit and achieve financial goals following your discharge from Bankruptcy / full completion of your Consumer Proposal

The Licensed Insolvency Trustee is responsible to certify that you attended and fully participated in these sessions to their satisfaction.

Automatic Discharge or Application for Discharge (Bankruptcy) | Certificate of Full Performance (Consumer Proposal)

Once the Licensed Insolvency Trustee is satisfied you’ve completed all your statutory requirements and the required time has elapsed, they will either issue the final required documents for discharge of the debt in either the Bankruptcy or Consumer Proposal. Alternatively, the Licensed Insolvency Trustee will submit an application to Court to have your discharge application heard requesting the debt be discharged. The Court will review the application and consider any contesting applications from your creditors to make its final ruling.

While creditors always have the right to contest your discharge, it is not common for the Court to rule against a Licensed Insolvency Trustee’s application — as the trustee represents both the interests of creditors and debtors in insolvency situations. Provided you have been transparent, forthright, and honest with the Licensed Insolvency Trustee throughout the insolvency, it’s likely this will mark the beginning of your financial fresh start.