Canada Bankruptcy Trustees Work For The Creditors, Right?

Category: Personal Bankruptcy

Wrong. It’s a common myth that a bankruptcy trustee works only for the creditors.  This is a myth most often spread by “debt consultants”.

This is not to say debt consultants are bad.  In fact many accountants, not-for-profit credit counsellors and others help people deal with their debts, and that’s great.  Good advice is always helpful.

The problem is that some debt consultants don’t actually provide you with good advice.  They charge you an up front fee, and after they gather all of your information, and cash your cheque, they send you off to see a trustee.  What was the point?  You can get a free initial consultation from a licensed trustee in bankruptcy, so there is usually no point in paying a large up front fee to an unlicensed and unregulated debt consultant.

Debt consultants will tell you that you need to pay them a fee to get “unbiased” advice.  But why is the debt consultant unbiased?  What services do they actually provide?  If they are not licensed to file bankruptcies or consumer proposals, and all they do is act as a referral source for trustees, you aren’t getting any value for the up front fee they charge.  That’s why they want to convince you that a trustee works for the creditors, and not for you.

Here’s the truth about trustees in bankruptcy:

When you  file bankruptcy in Canada the trustee will charge you a monthly contribution (based on your average income) to cover the costs of administering the bankruptcy.  They will file your taxes and collect your tax return, and if you own any other assets that are seizable, they will take them and sell them (such as a valuable car or house with no loans against them).  At the end of the bankruptcy, all of that money, after costs, is distributed to the creditors.

So yes, it’s true that the trustee is distributing money to the people you owe money to.  But that doesn’t mean they for the creditors.  In fact, it’s you, not the creditors, who “hire” the trustee.  The creditors only find out who the trustee is after the bankruptcy starts.  You are the one who decides who you use when you file bankruptcy in Canada.

Here’s an easy way to understand their role: The trustee is like a referee in a hockey game. At the start of the bankruptcy, just like at the start of a hockey game, the trustee tells everyone the rules.  They will explain that you must perform your bankruptcy duties, but the creditor must also obey the rules.  For example, once the bankruptcy starts a creditor is not allowed to hassle you, or garnishee your wages.  If a creditor breaks the rules, the trustee will go to court if necessary to enforce the rules.

Read that last sentence again: If a creditor breaks the rules, the trustee will go to court if necessary to enforce the rules.  That doesn’t sound like the trustee is “working for the creditors”, does it?

At the end of the bankruptcy your debts are discharged, so you are the one who benefits from the trustee’s actions, so the trustee is helping you.

To find out more about what a trustee will do for you, contact a licensed trustee today.