Why an LIT?

by Brandon Smith, CIRP, LIT
May 27, 2020

When I set out to write this article, I was expecting it to be published at a time that many Canadians were receiving their income tax notices of assessment. That normally comes with some anxiety as income tax debt is just one of many triggers that cause Canadians to rethink my most hated slogan of a certain bank, realizing they are not richer than they thought they were. May 2019 saw an uptick in insolvency filings by 4.5% over the prior month, so there may be a correlation between visits to a Licensed Insolvency Trustee and income tax debt.

The world now is a very different place and the income tax filing deadline has been extended to June 1st. Thankfully the COVID-19 curve has shown promise of flattening in Canada and now each province and city are unveiling their plans to restart the economy. The return will be slow and gradual and fraught with uncertainty as politicians balance our nation’s economic and health and safety needs. The recession, business closure and surge in layoffs and unemployment have created a perfect storm as many have had to rely heavily on credit to replace income in these unprecedented times.

The touchstones of Canada’s insolvency system are to balance an honest but unfortunate individual’s or company’s ability to get a fresh start, with creditors who have lent in good faith, being repaid. Unfortunately, there will be many who will need to access this system as our economy slowly restarts. The only professionals in Canada licensed to administer the various recovery options provided by the Bankruptcy and Insolvency Act (Canada) (the “BIA”) are  Licensed Insolvency Trustees (“LIT”). Just because a person or a business works with a LIT, it doesn’t mean they are or will be bankrupt. Bankruptcy is just one of the tools to deal with debt and creditors, a payment structure under a formal proposal is another option that only a LIT can advise and administer.

LITs have an unfortunate and unwarranted public stigma attached to them. Maybe it’s because up until four years ago we used to be called Trustees in Bankruptcy. Public perception had us feared which unfortunately led to an unregulated industry of consultants who, may have been able to provide advice but could not provide debtors with the regulatory framework and protection of Canada’s insolvency system. I fear in these uncertain times the public may be misled where to turn for advice and therefore it is important to highlight the benefit of working with a LIT.

Why is it important to use a LIT? Only a LIT:

  • can administer proceedings under the BIA which include bankruptcy, consumer proposal and commercial proposals
  • can offer solutions that use the BIA stay of proceedings protecting debtors, their income and property from creditor enforcement
  • is federally regulated
  • has undergone a background check by the RCMP before being granted a licence
  • is subject to a stringent code of ethics
  • maintains his/her competency by completing ongoing mandatory professional development each year
  • has fees for consumer matters that are regulated by statute and the court
  • in consumer matters does not charge additional upfront fees for consultation and planning; the BIA regulates what creditors are entitled to receive

What should you do if you or your company have too much debt?

If you’re dealing with serious financial issues, contact a LIT, who is the Canadian insolvency expert.  For the reasons already given, you should do this whether or not you’re contemplating filing. The reason is very simple:  the LIT will assess your situation, offer you all of your available options and may do this for you for free!  You can’t find a better deal anywhere.