A Bankruptcy Trustee. Setting the Record Straight.

Most people don’t really understand what a bankruptcy trustee is, who they work for, or how they get paid.  It is not complicated, but there’s so much misinformation on the internet that I thought it was worth a few minutes of our time to set the record straight.

First and Foremost: I Am Licensed

Bankruptcy trustees are licensed by the Office of the Superintendent of Bankruptcy (an operating unit of Industry Canada) to administer bankruptcies and consumer proposals in Canada.  The vast majority are professional accountants by training, but in the last decade people from quite diversified backgrounds have entered the profession.  To become a trustee you must first complete a specific regimen of training and pass and two levels of written examination.  The final exam is before an Oral Board where the candidate must demonstrate their competence to perform the tasks required of a trustee.

To be sure the professional you are dealing with is a licensed bankruptcy trustee see if they are listed in the government’s Bankruptcy Trustee Registry.

I Have A Duty To All Stakeholders

Once licensed, a bankruptcy trustee become an officer of the Court, with a duty of care to all of the different stakeholders in the insolvency process.  You don’t hire a trustee in bankruptcy – you attend at a trustee’s office and they assist you with the process of filing either bankruptcy or a consumer proposal. The trustee is actually appointed by an Official Receiver (or in some cases the Court) to administer your file.  Official Receivers are all employees of the Office of the Superintendent of Bankruptcy.

So who does the trustee work for – you or the Official Receiver?  Both and neither.  Your trustee is responsible to see that you have been advised what all of your duties and responsibilities are when you file either bankruptcy or a consumer proposal.  Your trustee reports all of their actions (after the fact) to the Official Receiver who signs off on the work before your trustee gets paid.  Trustees also have a responsibility to your creditors – to see that they are aware of the process and comply with their responsibilities (like to stop trying to collect from you).  In addition, there is the Court and the general public that also have an interest is what happens with your file.  These are all of the stakeholders that as officers of the Court trustees ‘work for”.

I Am Not A Bankruptcy Lawyer

Trustees are not government employees.  Trustees cannot be practising lawyers. There is in fact a difference between a bankruptcy trustee and a bankruptcy lawyer. To file bankruptcy, you see a trustee. Bankruptcy lawyers deal mostly with complicated case law.

Trustees cannot be bankers or other types of lenders.  When a person is licensed as a trustee they cannot be actively involved in any other business or profession that might conflict with their duties as a trustee.

My Fees are Set By Legislation

So how does a trustee get paid?  The law in Canada clearly sets out how trustees get paid for any work that they do.  In most personal bankruptcies (called Summary Administrations) trustee are paid a tariff – a percentage of the money collected during the bankruptcy.  When you file you will be required to make some sort of payment into your bankruptcy as part of your duties.  All the money you pay, plus any other money recovered by your trustee goes into a central “pot” and at the end of the bankruptcy it is divided up based on very specific rules.  That is how and when your trustee gets paid.

When you file a consumer proposal, all of your payments go into a trust account.  From this account a bankruptcy trustee is paid a preparation fee, and then the trustee receives an administration charge from each of the creditors when money is paid out of the trust.  All of this is set out clearly in the law – the fees and charges are regulated and should not vary from the set amounts.

Hopefully that clarifies what a trustee is, who they work for and how they get paid.  If you ever speak to someone about your financial problems and they ask you for payment “upfront” odds are they are not a bankruptcy trustee, rather they are some sort of debt consultant that will refer you to a trustee once you’ve paid their fee.

If they try to sell you a ‘government program’ and don’t tell you what it is, chances are again they are an intermediary who will refer you to an actual bankruptcy trustee.

Save your money and ask directly “Who Are You?“.  Are you a licensed bankruptcy trustee? If they are not, you should consider speaking to someone that is.

By the way, all the advisors on Bankruptcy Canada are licensed bankruptcy trustees, chosen to participate on this site because they have a strong reputation in their local communities.