Bankruptcy Trustee & Bankruptcy Lawyer – Players in the Insolvency Business
A debtor recently asked me to explain to him the difference between a Bankruptcy Lawyer and a Licensed Insolvency Trustee (LIT), and which of the two could help mitigate and or eliminate his financial problem with least cost and stress.
Most LITs are professional accountants (although some are not accountants) and go through an intensive course of study, and like the lawyers are well versed in the Bankruptcy & Insolvency Act (BIA) with following functional differences below.
However, unlike USA, where the bankruptcy trustee may be a local Bankruptcy Lawyer who is very knowledgeable about Chapter 7 or Chapter 13 bankruptcy, in Canada all personal and corporate bankruptcy or proposals are administered by a Licensed Insolvency Trustee (LIT) and not a Bankruptcy Lawyer. A Bankruptcy Lawyer in Canada cannot help any debtor declare bankruptcy or help them make a proposal, unless of course the lawyer is also a Licensed Insolvency Trustee (LIT), albeit a non-practicing lawyer.
A Bankruptcy Lawyer in Canada is used mostly on business related filings and to provide individuals advice in complicated situations. Under the Canadian legal system, a Bankruptcy Lawyer is really an “advocate” for his client and argues their position in a Court of Law. However, when it comes to Licensed Insolvency Trustee, there’s really nothing to argue about debts that an individual owes to his or her creditors because the job of a LIT is to ensure fairness to debtor and creditor, and following of rules and procedures as set out in the Bankruptcy & Insolvency Act (BIA).
If the Licensed Insolvency Trustee feels that there are contentious issues about debts or assets that a debtor has, the trustee will refer the debtor to a lawyer specializing in bankruptcy litigation.
When it comes to fees and costs of Licensed Insolvency Trustee (LIT), the Bankruptcy and Insolvency Act (BIA) regulates the payments. A Licensed Insolvency Trustee is normally paid for by the bankrupt through the bankruptcy estate. On the other hand, lawyers may charge a flat fee, or an hourly fee or a contingency fee, or a retainer fee, all of which may be relatively high, and often unaffordable for the debtors.
In spite of their functional differences, the Bankruptcy Lawyers and the Licensed Insolvency Trustees (LITs), both are significant players in the insolvency business in Canada and collaborate with each other at various crossroads.