Canadian Government Announces Concerns About Debt Advisors

Canadian Government Announces Concerns About Debt Advisors

On December 7, 2023, the Office of the Superintendent of Bankruptcy (OSB) issued a position paper (the “Paper”) titled The Adverse Effects of the Debt Advisory Marketplace on the Insolvency System. In the Paper, the OSB highlights several concerns regarding debt consultants and insolvency lead generators. There are many good points made in the Paper. However, in this blog post, we will specifically address their concerns that some consumers believe they must see a debt consultant before they make a Consumer Proposal.

We have written about debt advisors a couple of times before (see related blogs below), with the main goal being to educate consumers (and those giving them professional advice) that, while they may determine that they see value in hiring a debt advisor, such advisors are not a required part of the insolvency process.

It seems the government department in charge of overseeing bankruptcies and Consumer Proposals in Canada agrees. In the Paper, the OSB states “Debtors do not need a debt advisor to access an LIT and make an insolvency filing under the BIA. Debtors can discuss their financial situation directly with an LIT and LITs generally offer a free initial consultation”.

Because debt advisors end up referring individuals to LITs (Licensed Insolvency Trustees), which has the potential to result in a co-dependent relationship between the debt advisor and the LIT, the OSB worries that “some LITs may, intentionally or by omission, mislead debtors about the role of debt advisors, giving the impression that debt advisors and their fees are a necessary part of an insolvency proceeding. This can create a false perception that the involvement of a debt advisor is an expected part of the insolvency process”.

Because the OSB regulates LITs and not debt advisors (who are unregulated), it has made certain recommendations to LITs to ensure that they are independent, transparent, honest and avoid misleading or confusing debtors, intentionally or by omission, about the role of the LIT and that of debt advisors. We note that the practices of Charla Smith & Company have always reflected these points:

  • The LIT should explain to the debtor that any non-excluded debts and liabilities, present or future, which they have at the time of insolvency, including those owed to a debt advisor, are subject to a stay of proceedings and will be released upon successful completion of the insolvency proceeding.
  • The LIT should advise the debtor that reaffirming a pre-filing debt owed to a debt advisor, either by continuing to make payments or by express agreement, may not be in the debtor’s best financial interest.
  • LITs must provide their expert opinion and outline potential solutions tailored to the debtor’s specific financial issues. This includes providing accurate and unbiased information on the role of debt advisors and explaining the impact of future payments to debt advisors on the acceptance and viability of a consumer proposal.

Charla Smith & Company celebrates this effort by the OSB to ensure that LITs are aware of their responsibilities, as well as the OSB's continued efforts to educate the public through consumer alerts such as this one. This Paper properly puts an onus on LITs to ensure they are not doing anything to mislead (even unintentionally) consumers on this issue.

Given full information, some individuals may decide they want to continue paying their debt consultant because they feel it is worth it for the advice they received. But many people who make an insolvency filing can’t afford to pay unnecessary fees or could better use the funds to, for example, rebuild their emergency savings, so we suspect that educating the public on this matter may result in fewer people approaching debt consultants for advice, and those that do may stop making ongoing payments to a debt consultant once they realize those payments are not necessary.

Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee, serving the southern Alberta region. We regularly help individuals  review their financial situation and consider options for dealing with overwhelming debt... without a need to first get assistance from a debt advisor. If you'd like a free consultation, please reach out to us.

Disclaimer: This publication provides general information and should be seen as broad guidance only. The information contained herein cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon this information without obtaining specific professional advice relating to your particular circumstances. Charla Smith & Company Ltd. does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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Frequently Asked Questions

No, a Licensed Insolvency Trustee is an impartial facilitator who communicates with all parties to make sure the process is transparent, and that everyone is following the required rules so that the process is orderly and predictable.

It can be hard to identify a debt consultant when you're viewing their advertising or website. Sometimes you might think you are dealing with a LIT. Debt consultants often refer to Consumer Proposals and sometimes imply that this is a service they can provide, even though they cannot.

According to Directive 33, issued by the Superintendent of Bankruptcy, "Licensed trustees shall identify themselves using the professional designation “Licensed Insolvency Trustee” or the acronym “LIT” in all communications or representations falling within the purview of a licensed trustee under the BIA".

Therefore, if it is not immediately clear that the company or individual is a Licensed Insolvency Trustee, chances are they are not. For a list of valid Licensed Insolvency Trustees, try the Find an active Licensed Insolvency Trustee page on the Government of Canada's website. Or, contact us and we can help you make sure you're dealing with a legitimate company.

Licensed Insolvency Trustees (or LITs) are the only people who can provide bankruptcy or Consumer Proposals as an option for dealing with your debt. They are uniquely qualified to provide these services and give you advice about your debt. For more information, see our blog post: What is a Licensed Insolvency Trustee?

Not at all. Bankruptcy is one of the services we provide but it is not the best solution for everybody. In fact, more often than not we recommend a solution other than bankruptcy. A Licensed Insolvency Trustee is simply the best resource for reviewing your options, as we are highly trained, regulated by the government and our professional association, and well-versed in a variety of options. Contact us if you'd like to start a conversation about your options.

In some cases, particularly where the debt is large, you may benefit from consulting a lawyer for assistance with negtiating a deal with your creditors. If you need help finding a good lawyer, a Licensed Insolvency Trustee can typically make a referral to a lawyer experienced in debt issues. If you can’t afford a lawyer, you may be able to find free legal resources in your community.

A credit counsellor may be willing to assist you, for a fee. However, make sure you do your homework before you sign anything or pay a credit counsellor. Some credit counsellors are essentially debt settlement companies, with the same potential pitfalls discussed in Everything You Need to Know About Debt Settlement. And like debt settlement companies, they are not well regulated so you need to do your own research to make sure they are legitimate and have ethical practices.

Another option is to contact a Licensed Insolvency Trustee for a free consultation. Licensed Insolvency Trustees will educate you about your options and may be able to give you some guidance on negotiating with your creditors.


With our experience and our caring approach, we will help you find the best option for debt relief based on your unique situation - from advice on talking to your creditors to a consumer proposal or bankruptcy, and everything in between. We are here to lift the burden caused by overwhelming debt. 

Contact us today at 1-403-899-3890‌ for a FREE, no-commitment meeting, and let us guide you to regaining your financial footing.

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