How do Insolvency Trustees Get Paid?
When we meet with individuals, or directors of a corporation, in order to provide them with information about possible options that are available to deal with debt and financial problems, the conversation will eventually come around to address fees. How do Insolvency Trustees get paid? An honest question. Let’s take a closer look.
Who We Are
The people that administer Consumer Proposals or Bankruptcies in BC, and across Canada, are professionals who have been licensed by the Federal Government. Most have a professional accounting designation as a Chartered Professional Accountant (CPA). The majority of us also have a university degree.
Originally, we were called a Trustee in Bankruptcy or a Bankruptcy Trustee. More recently, the term was changed to Licensed Insolvency Trustee (LIT) to better reflect that we are involved in more than just Bankruptcies; we can help in financial reorganizations, or consolidations, by way of a Consumer Proposal or Division 1 Proposal.
Our job is to administer insolvencies pursuant to the provisions of the Bankruptcy and Insolvency Act which is set by the Government of Canada.
To recap, first a university degree, second phase is to qualify as a Chartered Professional Accountant, and finally become a Licensed Insolvency Trustee if approved by the Canadian Government. That is a lot of exams to write and experience to gain. Looking at numbers is what we like to do.
We are required to maintain annual professional development training and adhere to a code of ethics.
We are entrusted to handle money via trust accounts deposited at one of Canada’s banks and provide an accounting of the trust balances to the Office of the Superintendent of Bankruptcy (Federally Government) annually or whenever requested.
Fees are Set by a Tariff
The vast majority of insolvency filings across Canada are via a summary administration personal Bankruptcy or a Consumer Proposal.
In each of these cases, LIT fees are calculated via tariff, determined by the Government. In other words, we do not get to calculate what our fees are in these cases. The tariff calculates the fee based upon the amount of receipts deposited into the trust account. Generally speaking, the higher the amount of deposits the larger the fee.
For a summary administration Bankruptcy, the fee has an upper end restriction so it can’t get too large.
The goal of the tariff is to protect the public and to provide a transparent process. This also provides for a consistent landscape across the country.
Pro tip: a difference that we have noticed is that some LIT offices will require a larger amount of money to start a file than we do.
Cost of a Personal Bankruptcy
For years that standard cost of a first time summary administration personal Bankruptcy in Canada has been $1,800. This amount is not required all at once. Rather, it is typically paid in over a nine month period. The monthly amount that a person ends up paying commonly ranges from $100 to $180 per month depending on if there are other assets to be recovered such as tax refunds or gst credits.
When a person’s average monthly income requires them to pay in “surplus”, as defined by the Bankruptcy and Insolvency Act, a personal Bankruptcy will last 21 months and the amount of funds in trust will typically be larger than $1,800 resulting in a higher fee for the LIT.
For those situations where a person is filing for Bankruptcy for a second or third time the cost will rise but are usually still determined by tariff.
These costs cover the following basic services:
- Preparing documents for signatures
- Contacting creditors to advise of “stay of proceedings”
- Filing fee payable to the Federal Government
- Two financial counseling sessions
- Preparation and filing of personal tax returns
- Monitoring of monthly income
- Attendance at Court, if necessary
- Reporting to creditors and filing of statutory documents with the Federal Government
Cost of a Consumer Proposal
Consumer Proposals have become the most popular way for Canadians to get relief from their creditors. Although found in the same Federal Law, a Consumer Proposal is technically different from a Bankruptcy filing.
A lot like it sounds, a Consumer Proposal is an offer, or a proposal, to repay a portion of what is owed back to the unsecured creditors over time. Much like a consolidation loan, there is usually a monthly payment made into the LIT’s trust account.
A Consumer Proposal must be completed within sixty months (five years) but can be completed sooner.
Sometimes, these proposals are fairly modest in dollar amount and sometimes they can be for a larger amount. It depends on a variety of factors such as:
- Monthly average income
- Assets that are not exempt from creditors
- The amount of people in the household
- Whether there are daycare, medical expenses or support payment being made
- What a person wants to repay
Consumer Proposals are routinely agreed to by unsecured creditors because they offer a slightly better recovery to the creditors than what a Bankruptcy is projected to recover.
Whatever the amount of the Consumer Proposal ends up being, a LIT’s fee is calculated by tariff and comes from within the proposal payments.
In other words, there is not a secondary payment for fees; the Consumer Proposal scheduled payment is all inclusive.
Other Types of Insolvency Filings
There are several other types of insolvency filings that a Licensed Insolvency Trustee is involved in such as:
- Ordinary Administration Bankruptcy
- Division 1 Proposal
- CCAA – Companies Creditors Arrangement Act
These insolvency filings will either be for a company or for an individual where there are significant assets for the LIT to administer.
In these other types of insolvency filings, LITs will keep track of their time spent and calculate a fee much like an accountant or a lawyer would.
At the conclusions of the filing, the LIT will present the time charged to the parties involved and to the Court for approval.
Contact Us – We are Here to Help!
Interest rates have risen dramatically and inflation is still pushing up the cost of food and housing. If you are like many who are feeling this financial squeeze do not hesitate to contact us to arrange for a no cost initial meeting. There is no referral required.
We will review your situation and provide you with some advice as to how to move forward. Before you know it, the momentum will change and you will be on a better financial path.