If you are drowning in unsecured debt and trying to figure out who to call first, the language can feel confusing. Some websites tell you to find a “bankruptcy lawyer,” others tell you to call a “Licensed Insolvency Trustee,” and the two sound like they do the same job. They do not. In Canada, there is a clear legal line between these two professionals, and getting that line right can save you thousands of dollars and weeks of stress.
This guide explains exactly what a Licensed Insolvency Trustee (LIT) does, what a bankruptcy lawyer does, when you need each one, and why almost every Canadian dealing with personal debt should start with an LIT. We will also walk through fees, how the process works, and how to find a qualified professional in your province.
What Is a Licensed Insolvency Trustee?
A Licensed Insolvency Trustee is a federally regulated professional licensed by the Office of the Superintendent of Bankruptcy (OSB), a branch of Innovation, Science and Economic Development Canada. According to the OSB, LITs are “the only professionals authorized to administer government-regulated insolvency proceedings that allow you to be discharged from your debt,” including consumer proposals and bankruptcies.
To become an LIT, a candidate must complete a multi-year qualification program (the Chartered Insolvency and Restructuring Professional designation), pass a national insolvency exam, complete an insolvency counsellor course, and pass an Oral Board of Examination. They are then licensed and supervised under the Bankruptcy and Insolvency Act (BIA) and bound by a federal Code of Ethics.
Once you sign paperwork to file a proposal or bankruptcy, your LIT deals directly with creditors, stops collection calls, halts wage garnishments, and pauses most lawsuits. They also provide two mandatory financial counselling sessions to help you rebuild after the filing.
What a Bankruptcy Lawyer Actually Does
In Canada, “bankruptcy lawyer” is not a formal designation — it simply means a lawyer whose practice focuses on insolvency law. According to Spergel, a national LIT firm, “personal bankruptcy cannot be delivered by a lawyer, debt consultant, or accountant (unless they are also Licensed Insolvency Trustees).” Lawyers cannot file your bankruptcy, cannot file your consumer proposal, and cannot stop collection actions on your behalf the way an LIT can.
What an insolvency lawyer can do is provide legal advice, represent you in court if your discharge is contested, defend you if creditors challenge your filing, or advise you on complex matters such as fraud allegations, marital property issues, or director liability for corporate debts. In rare cases, an LIT may even refer you to an insolvency lawyer if your file involves a contentious legal question.
For the typical Canadian who is behind on credit cards, payday loans, or a line of credit, a bankruptcy lawyer is rarely the right first call.
Why Most Canadians Start With an LIT
When an LIT Is Not Enough
Who Should See an LIT First
An LIT is usually the right first call if:
- You owe more than you can realistically repay in five years
- You are behind on credit cards, lines of credit, or payday loans
- Collection agencies are calling, or your wages are about to be garnished
- You are considering a consumer proposal or bankruptcy but do not know which fits
- You owe money to the Canada Revenue Agency and they are threatening enforcement
- You want a free, no-pressure review of all your debt relief options before committing
Who May Need a Lawyer Instead
You may need to involve an insolvency or other lawyer if:
- A creditor is opposing your bankruptcy discharge in court
- You are accused of fraudulent transfers, preferences, or hiding assets
- Your debts are entangled with a divorce, separation, or matrimonial home
- You are a director of a corporation facing personal liability for company debts
- You are a creditor trying to recover money from someone who has filed
- You have a contentious second bankruptcy and the OSB wants to question you
What It Actually Costs
This is where the difference becomes very real. LIT fees for consumer insolvencies are regulated by the federal government, so the price for filing a consumer proposal or bankruptcy is essentially the same no matter which trustee you use. Lawyers, by contrast, bill by the hour, and rates vary widely.
How to Find the Right Professional
Choosing the right professional starts with knowing which problem you actually have. Below is the order most Canadians should follow.
- Write down your debt picture. List every unsecured debt — credit cards, personal loans, payday loans, tax debt, collection accounts — with current balances and minimum payments. This is the document an LIT needs first.
- Book a free consultation with a Licensed Insolvency Trustee. Use the official OSB Licensed Insolvency Trustee directory to confirm the firm is real and active. Bring your debt list and recent pay stubs.
- Ask for the full menu of options. A good LIT will walk you through informal solutions, credit counselling, debt consolidation, consumer proposal, and bankruptcy — not just push the most lucrative option for them.
- Decide whether your situation is contested. If a creditor is suing you, alleging fraud, or opposing a future discharge, ask the LIT whether they recommend bringing in an insolvency lawyer for that specific issue.
- Hire a lawyer only for the legal piece. If a lawyer is genuinely needed, hire them for the contested issue (the hearing, the court motion, the property dispute) — not to file your insolvency, which the LIT will handle.
- File and follow through. Once you sign with the LIT, the automatic stay kicks in. From that point, you make your monthly payments, attend your two counselling sessions, and stay current with the trustee until you receive your discharge or completion certificate.
Ready to see which debt relief option actually fits your situation?
Frequently Asked Questions
Can a bankruptcy lawyer file my bankruptcy in Canada?
No. Under the Bankruptcy and Insolvency Act, only a Licensed Insolvency Trustee can file a consumer proposal or personal bankruptcy in Canada. A lawyer can give you advice about the consequences and represent you in court if a matter is contested, but the actual filing must go through an LIT. This is one of the biggest differences between the Canadian system and the U.S. system, where attorneys handle bankruptcy filings directly.
Do I need both an LIT and a lawyer?
For most personal debt situations, no. The vast majority of consumer proposals and personal bankruptcies in Canada are completed with only a Licensed Insolvency Trustee. You may need to add a lawyer if creditors oppose your discharge, if you face allegations of fraud or preferential payments, if your debts overlap with a divorce or property dispute, or if you are a director of a corporation with personal exposure. In those cases, the LIT still administers your file and the lawyer handles the contested legal piece.
How much does a Licensed Insolvency Trustee charge?
The first consultation with an LIT is almost always free. The fees for consumer proposals and bankruptcies are set by the Bankruptcy and Insolvency Act and paid out of the monthly contributions you make to your file, not as separate invoices. For a basic personal bankruptcy, the regulated fee is roughly $1,800 paid in instalments. For a consumer proposal, the trustee’s fee is built into the negotiated monthly payment, so it does not increase what you pay your creditors above what was agreed.
Will an LIT actually take my side, or are they neutral?
An LIT has a fiduciary duty to act fairly toward both you and your creditors — they are not your personal advocate the way a lawyer is. That said, in practical terms a good LIT spends most of their time explaining your options, protecting you from creditor harassment, negotiating proposals on your behalf, and counselling you through the process. If your file becomes genuinely contested and you need someone to “argue your side,” that is the moment to add an insolvency lawyer to the picture.
What if I just need legal advice and not a filing?
If you simply want a legal opinion on whether bankruptcy or a proposal will affect a specific situation — for example, your immigration status, a professional licence, your security clearance, or a pending lawsuit — a short consultation with an insolvency lawyer can be useful. You can also raise these questions during your free LIT consultation. The LIT cannot give legal advice, but they can flag whether the issue you are worried about is something they have seen handled inside the BIA process or whether you should pay for an hour of legal advice before filing.
