What Really Happens When You Meet a Licensed Insolvency Trustee in Canada?

Yes. Federal advertising rules allow Licensed Insolvency Trustees to offer free initial consultations, and most do. The meeting is a structured conversation: the LIT looks at the person’s income, expenses, debts, and assets at a high level, then walks through the formal and informal options available under Canadian law. Nothing is signed, nothing is filed, and there is no obligation to take a next step.

Yes. The first meeting is private. Creditors, employers, and family members are not notified that the person met with an LIT, and the conversation does not appear in any public record. Confidentiality changes only if and when the person decides to file something — at that point, the filing itself enters the federal public-records database and creditors are formally notified. Until then, the conversation stays between the person and the LIT.

A Licensed Insolvency Trustee is a federally licensed professional regulated by the Office of the Superintendent of Bankruptcy. In recent years, regulators have raised concerns about unregulated debt consultants operating outside this framework and influencing how debtors first access insolvency advice. Only an LIT can administer the two formal debt-relief processes under Canadian law — the Consumer Proposal and the Bankruptcy. Credit counsellors and debt-settlement companies offer different services (informal negotiations, debt-management plans, for-fee settlement attempts) and cannot file or administer either federal option. LIT fees are set by federal regulation; debt-settlement companies typically charge sales-driven fees the person continues to owe whether the negotiated settlement succeeds or not.

A Consumer Proposal is available where unsecured debts total at least $1,000 and no more than $250,000, not counting the mortgage on a principal residence. Bankruptcy requires the person to owe at least $1,000 and to be unable to pay debts as they come due, with no upper limit. People whose unsecured debts exceed $250,000 can still propose to creditors using a different process called a Division I Proposal, which has its own rules and risks.

Not necessarily. In a Consumer Proposal, the home stays with the person as long as the regular mortgage payments continue. In a Bankruptcy, the answer depends on the equity in the home and on the province’s exemption rules. If the equity exceeds the provincial exemption and the person cannot make arrangements with the Trustee to cover the excess, the home may have to be dealt with. People with significant home equity often choose a Consumer Proposal specifically because it preserves the home regardless of equity.

Often, no. Each province sets an exemption value for one vehicle; vehicles below that value are protected in a Bankruptcy. Vehicles above the exemption value can usually still be kept if the person makes arrangements with the Trustee for the excess equity. Financed or leased vehicles can stay as long as the loan or lease payments continue. In a Consumer Proposal, the vehicle stays with the person regardless of equity, provided any car loan continues to be paid on schedule.

Generally no, with two exceptions. Joint debts — anything both partners signed for — remain the other partner’s full responsibility, even after the filing person’s portion is resolved. Co-signed debts work the same way: the co-signer is on the hook for the full amount. Beyond joint exposures, a spouse’s separate credit, separate accounts, and separate assets are unaffected by their partner’s filing.

Almost never. An employer is not informed when someone files a Consumer Proposal or Bankruptcy. The common exception is an existing wage garnishment — in that case, the Trustee contacts the employer to stop the garnishment, and stopping it is often a strong reason to act in the first place. Some regulated professions also require self-reporting to a licensing body; people in those fields should raise it specifically at the first meeting.

Filing either a Consumer Proposal or a Bankruptcy triggers an automatic legal protection that pauses most collection activity directed at the debtor. Creditor and collection-agency calls have to stop. Civil lawsuits cannot proceed. Wage garnishments come off, with limited exceptions (garnishments for court-ordered child or spousal support, for example, continue). The protection takes effect on the day the filing is submitted to the federal regulator.

A Consumer Proposal is noted on credit-bureau records for the length of the proposal plus an additional three years (commonly six years from filing for most proposals). A first-time Bankruptcy generally remains on the credit file for approximately six or seven years from the date of discharge, with the precise period varying by province and by credit bureau. Rebuilding credit afterward is a deliberate process — secured cards, on-time payments, time — and many people see meaningful recovery within two to three years of completing the process.

A Consumer Proposal is a negotiated settlement: the person offers creditors a reduced amount payable over time (up to five years) and keeps their assets. A Bankruptcy is a transfer of non-exempt assets to a Trustee in exchange for the release of most unsecured debts; it typically lasts nine to twenty-one months for a first-time bankrupt, depending on income. A Proposal payment is fixed up front; a Bankruptcy payment can rise if income rises above a federal threshold. Both pause collection activity on filing. Both require two financial-counselling sessions during the process. The right choice depends on the person’s income, assets, total debt, and goals.

Most unsecured debts can be included: credit cards, lines of credit, payday loans, personal loans, overdrafts, and most income-tax debt. Certain categories generally cannot be discharged — court-ordered support payments, court fines and restitution orders, debts arising from fraud, and student loans where the person has been out of school for less than seven years. Secured debts (mortgages, car loans) are not erased; they continue to be paid (and the asset kept) or the asset is given up in exchange for releasing the loan.

CRA debts — income tax, GST/HST, source deductions — can be included in both a Consumer Proposal and a Bankruptcy, and are usually treated as ordinary unsecured debts. CRA votes on Consumer Proposals like any other creditor; proposals offering CRA less than they would receive in a Bankruptcy risk rejection. Anyone with a large CRA balance should make sure their tax filings are current before filing, as this materially affects how the file proceeds. For business owners dealing with active CRA collection actions such as garnishments or frozen bank accounts, read here a practical guide on stopping CRA garnishments and bank freezes.

LIT fees are set by federal regulation and are paid out of the file itself, not as a separate invoice. In a Consumer Proposal, the Trustee’s fee is built into the monthly proposal payment that is already negotiated — there is no surcharge layered on top. In a Bankruptcy, fees come out of the assets the Trustee administers and from a base payment that varies with income and family size. The first consultation is free, and there is no fee for considering an option and deciding not to proceed.

A Consumer Proposal can be paid off early at any time with no penalty, by lump sum or accelerated payments. If income drops, the proposal can sometimes be amended with creditor consent. If three monthly payments are missed, the proposal is automatically cancelled and the original debts come back — anyone in difficulty should call their Trustee well before that point. In a Bankruptcy, payments rise or fall with income and family size by formula; counselling sessions need to be attended, and missed obligations can delay the eventual discharge.