What To Do Before You Call A Licensed Insolvency Trustee

1. Gathering Your Financial Information

Let me start by saying that if you haven’t collected all of the information, it should not prevent you from talking to an LIT. Even without this information they can give you some basic advice, and after listening to your situation they can provide you with a focused list of documents to gather. They can even help you gather certain types of information.

However, for a full and detailed assessment of your options, the LIT will require the following types of relevant documents or information:

• List of your debts – who you owe and how much
• Copies of any demand letters, default notices, etc.
• Copies of loan agreements, if available
• List of your assets, along with details that will help estimate their value, and details of any co-ownership issues.
• How much income you earn and the extent to which it fluctuates from month to month
• Approximately what are your expenses every month, broken down into major categories (if you have a budget, that’s helpful)
• Who else is in your household and how they contribute to the income and expenses of the household
• Information about any businesses you own or are director of, and their finances
• Information about any previous insolvency filings you may have made

Keep in mind that if a full detailed assessment of your options isn’t possible in the first meeting with the LIT due to additional information that’s required, this is very common. The LIT will work with you to complete the assessment once the information is available.

2. Working on Your Budget

As you can see from the previous point, the LIT is going to need you to provide information about your household income and expenses. So while you’re collecting that information, you might want to create a budget.

Budgets are useful tools for many reasons, and one of the ways they can be helpful is that they provide a good overview of your monthly finances. This overview might help you gain some insight into the reasons you’re struggling financially or some possible ways to improve your situation. Even if these improvements aren’t sufficient for you to avoid an insolvency filing, it may be part of the solution.

At the very least, feeling confident that you have a handle on your monthly finances may help you feel more prepared to take the next steps.

3. Getting Your Tax Filings Up To Date

Even if tax debt is not a concern, you will likely be unable to move forward with an insolvency filing if your tax returns aren't up to date. This may also apply to any corporations you own or are a director of. A few reasons for this:

• If you owe any tax debt at all, that debt can be included in your proposal or bankruptcy and it is in your best interest to make sure you’ve given Canada Revenue Agency all the information to be able to file a claim. If you don’t, and they find out after you’ve completed your insolvency filing that you owe taxes (or penalties related to late filing) debt, you may be obligated to pay some or all of it.
• If you are a director or insider of a corporation, you may have personal liability for some of its tax debt. The exposure you have can only be assessed if the amount the corporation owes has been established.
• If you’re including tax debt in a proposal or bankruptcy, Canada Revenue Agency (and your Trustee) will want to see that you‘ve done everything you can to get compliant with tax laws now and to remain compliant going forward. If not, Canada Revenue Agency will vote against your proposal, or they (or the Trustee) may oppose your discharge from a bankruptcy.
• If you’re a sole proprietor, the best way to get a handle on your net income from your business is to get your tax returns filed, as that process will identify which expenses can be deducted and how much tax will come off of your income. The net income is the number the LIT will be using to analyze what you’d have to pay in each of your options.

4. Laying The Groundwork To Achieve Your Post-Debt Goals

An insolvency filing deals with the debts you already owe. And resolving debt issues will put you in a better position to pursue financial goals. But this alone may not be sufficient to reach your goals. Other things you may want to resolve are:

• Stabilizing or increasing your income.
• Stabilizing or reducing your expenses
• Selling or releasing assets you don’t need or can’t afford
• Resolving any divorce or family support issues
• Getting the right professional advisers in place

We don't recommend that you make any final decisions regarding any of the above before you speak to an LIT, as they may be able to shed light on some things you should consider before you make those decisions. For example, many of the above steps can impact your options for dealing with your debt. And vice versa, the option you choose to deal with your debt can impact these matters. It's best to understand all of your options for dealing with the above and for dealing with your debt before you make a decision on any of them.

5. Researching Your Options

Speaking with a Licensed Insolvency Trustee (or perhaps an insolvency lawyer) is the best way to get accurate information about your options, and to find out how each of your options will impact your situation, and vice versa. Information provided by non-LIT debt consultants, or from friends or acquaintances who have some experience with insolvency, however well-meaning, is usually not reliable. Nor is much of the information found on the internet. Insolvency law is a complex subject, and the specifics of each individual’s situation can have a major impact on how an insolvency filing might play out. However, if you don’t feel ready to reach out to an LIT there are a few reliable ways to get information about your options:

• The first step is to visit the Superintendent of Bankruptcy’s website. This is the federal department in charge of regulating and enforcing insolvency laws. Its website will provide some important things:
  • A link to a program which provides advice on budgeting, financial goal setting, etc. Most LITs use this program as the basis of the financial counselling they provide as part of an insolvency filing, and anyone can access it for free; 
  • Information about options for dealing with your debt, including a debt questionnaire which can help you pinpoint some options that might make sense for your situation;
  • A list of LITs that have valid licenses to provide insolvency services. From there, you can look up LITs in your area.
• Once you’ve identified some LITs in your area, you can check out their websites, which usually provide some general information about insolvency options, including articles about specific debt-related information. For example see our blog.

While this information is useful in pointing you in the right direction, it may not be realistic to think you can make decisions based off of this information alone. The devil is in the details when it comes to applying the information you find to your specific situation, which is where an LIT can be very helpful.

6. Select The Right Licensed Insolvency Trustee

All LITs have been licensed by the federal government after proving their competence and trustworthiness. And most people who choose a career in insolvency are (in my personal experience) kind, non-judgmental people who genuinely want to help people navigate a tough situation. Therefore, you will likely find that most LITs are able to give you good advice in a comfortable environment. However, all LITs are independent professionals, meaning that each may have different ways of managing your file or have different types of insolvency filings they prefer to administer or have more experience with. Each individual LIT will also have their own unique communication style. Therefore, some may be a better fit for you or your particular situation than others.

You may be able to get a sense of whether an LIT is the right fit for you by visiting their website, or reading reviews others have posted about them. Or, you may want to call and have a preliminary conversation before booking a consultation. You may be working with the LIT and their staff for a period of several years if you end up making an insolvency filing, so it's worth taking the time to find the right fit.

It's understandable to feel apprehensive about calling an LIT, but if you wait too long there are consequences, as we explained in our article: What is the Sweatbox and why should you avoid it?. Taking the above steps should be enough for you to feel ready to move forward.

When you’re feeling ready to talk to an LIT, you can contact us for a free, no-commitment consultation. Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee serving the southern Alberta region, which regularly helps individuals, including business owners, review their options for dealing with their debt. 

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.