Why Might You Need a Trustee?
If you are struggling with debt, receiving collection calls, or searching for debt help in Canada, you may have come across the term Licensed Insolvency Trustee, also known as an LIT.
A Licensed Insolvency Trustee is a federally regulated professional who helps individuals and businesses understand formal and informal options for dealing with serious debt problems. LITs are also the only professionals authorized to administer consumer proposals and bankruptcies in Canada.
Speaking with an LIT does not mean you must file a consumer proposal or bankruptcy. An LIT should first review your financial circumstances and explain the options that may apply.
For Ontario homeowners, this conversation can be especially important when comparing a formal debt solution with mortgage refinancing, a home equity line of credit, or a second mortgage.
Quick Answer: What Does a Licensed Insolvency Trustee Do?
A Licensed Insolvency Trustee reviews a person’s income, debts, expenses, assets, and overall financial situation. The LIT explains available debt solutions and administers a consumer proposal or bankruptcy if the person chooses to proceed and qualifies.
An LIT also communicates with creditors, prepares and files the required documents, receives payments, and completes the legal and reporting duties connected with the proceeding.
Licensed Insolvency Trustees are regulated by the Office of the Superintendent of Bankruptcy, which supervises matters governed by Canada’s Bankruptcy and Insolvency Act.
At Mortgage Brain, we often speak with homeowners who are deciding between using home equity and seeking formal debt assistance. These options do not have the same costs, risks, or legal effects. Understanding the differences before unsecured debt is moved into a mortgage can help homeowners make a more informed decision.
What Is a Licensed Insolvency Trustee in Canada?
A Licensed Insolvency Trustee is an individual or firm licensed by the Office of the Superintendent of Bankruptcy to administer consumer proposals and bankruptcies.
LITs may work through private firms, but they must meet federal licensing requirements and follow the Bankruptcy and Insolvency Act, its rules, official directives, and professional standards.
Their responsibilities may include:
- Reviewing a person’s financial circumstances
- Explaining available debt options
- Preparing and filing insolvency documents
- Communicating with creditors
- Receiving and distributing required payments
- Reviewing income and assets
- Administering mandatory financial counselling
- Reporting to the Office of the Superintendent of Bankruptcy
- Completing the proceeding according to federal law
Only a Licensed Insolvency Trustee can administer a consumer proposal or bankruptcy in Canada. A credit counsellor, debt consultant, mortgage broker, lawyer, accountant, or financial adviser cannot perform that role unless they are also licensed as an LIT.
What Role Does an LIT Play?
An LIT has legal and professional duties within the insolvency process.
The trustee reviews the debtor’s financial situation and explains possible insolvency and non-insolvency options. If a consumer proposal or bankruptcy is filed, the trustee must administer it according to federal law.
An LIT does not simply work as the debtor’s personal representative. The trustee must also carry out duties involving creditors and the federal insolvency system.
Their role is not the same as acting as the debtor’s personal lawyer, accountant, mortgage professional, or financial adviser.
This distinction matters because different professionals are qualified to explain different parts of a financial decision.
For example:
- An LIT can explain and administer a consumer proposal or bankruptcy.
- A mortgage professional can explain mortgage refinancing, HELOCs, and second mortgages.
- A lawyer can provide legal advice.
- A qualified tax professional can explain tax consequences.
- A credit counsellor may explain budgeting and debt management plans.
What Can a Licensed Insolvency Trustee Help With?
An LIT can review several possible ways to address debt.
These may include:
- A personal repayment plan
- Negotiating directly with creditors
- A debt management plan through a credit counsellor
- A consumer proposal
- Personal bankruptcy
- Other non-insolvency options that may fit the person’s circumstances
The Office of the Superintendent of Bankruptcy provides a comparison of debt management plans, consumer proposals, and bankruptcy because each option has different payment requirements, legal effects, timeframes, and consequences.
An LIT should not automatically place every person into a proposal or bankruptcy. The person’s income, assets, debts, payment ability, household expenses, and goals should be reviewed first.
How Does an LIT Administer a Consumer Proposal?
A consumer proposal is a formal offer to unsecured creditors.
It may offer to:
- Repay part of the unsecured debt
- Extend the repayment period
- Repay the debt through regular payments
- Use a combination of reduced debt and additional time
There is no standard percentage that everyone pays. The proposal amount depends on the person’s income, debts, assets, home equity, household situation, and what creditors may reasonably accept.
A consumer proposal cannot last longer than five years. The LIT prepares and files the proposal, sends it to creditors, receives payments, and distributes the funds according to the federal process.
Once a proposal is filed, the person generally stops making direct payments to the unsecured creditors included in it. Certain collection calls, wage garnishments, and legal actions involving included debts may also stop, subject to the Bankruptcy and Insolvency Act.
Can You Keep Your Home and Car in a Consumer Proposal?
A consumer proposal may allow a person to retain assets, but keeping a home or vehicle should not be treated as guaranteed.
The LIT may review:
- The property’s value
- The remaining mortgage balance
- Other secured loans
- Available home equity
- Mortgage payment status
- Vehicle value
- Vehicle financing
- The person’s ability to keep making secured payments
- What creditors could receive under another proceeding
A consumer proposal does not remove valid mortgage or vehicle security. Homeowners generally need to continue meeting their mortgage obligations if they want to keep the property.
At Mortgage Brain, we often see homeowners focus only on the possible proposal payment. Home equity may also be relevant because creditors can consider what may be available in another insolvency proceeding. An LIT should review the property and secured debts before giving proposal advice.
How Does an LIT Help With Bankruptcy?
Bankruptcy is a formal legal process that may discharge many unsecured debts, but it does not automatically eliminate every type of debt.
The LIT reviews the person’s circumstances, explains their duties, files the required documents, deals with creditors, reviews assets and income, and administers the bankruptcy estate.
Bankruptcy may involve:
- Required payments
- The review or sale of certain non-exempt assets
- Monthly income reporting
- Surplus-income payments
- Mandatory counselling
- Credit-report consequences
- Restrictions and legal duties
The length of bankruptcy depends on several factors.
A person filing bankruptcy for the first time may be eligible for an automatic discharge after nine months if they have no surplus-income payment requirement, complete their duties, attend the required counselling sessions, and no discharge opposition is filed.
A first bankruptcy with surplus-income obligations may last at least 21 months. Previous bankruptcies or other issues can result in longer periods.
Bankruptcy should therefore not be described as a simple reset button. It is a major legal process with financial, legal, and credit consequences.
Is the First LIT Consultation Free?
Many Licensed Insolvency Trustees offer an initial consultation at no cost, but consumers should confirm this when booking.
A free consultation is common, but it should not be described as a legal requirement for every LIT firm.
During the initial meeting, the LIT may review:
- What you owe
- What you earn
- Your monthly expenses
- Your property and other assets
- Your home equity
- Secured and unsecured debts
- Collection or legal actions
- Previous insolvency filings
- Your ability to make payments
- Your financial concerns and goals
Meeting with an LIT does not require you to file a consumer proposal or bankruptcy.
If you choose to file, costs and trustee fees apply. Fees in formal insolvency proceedings are governed through the federal insolvency process.
Do You Need a Debt Consultant Before Speaking With an LIT?
No. You can contact a Licensed Insolvency Trustee directly.
You do not need to pay a separate debt adviser or consultant to gain access to a consumer proposal or bankruptcy.
Some debt advisers charge fees before referring consumers to an LIT. These advisers cannot administer a consumer proposal or bankruptcy unless they are themselves licensed as LITs.
The Office of the Superintendent of Bankruptcy has raised concerns about parts of the debt advisory marketplace. In its 2026 update, the OSB reported examples of contracts showing debt-advice fees between $1,000 and $3,000 per file, with some arrangements involving even higher amounts.
Before paying a debt adviser, ask:
- What qualifications do you hold?
- Are you a Licensed Insolvency Trustee?
- What service are you providing?
- How much will it cost?
- Will you file or administer anything?
- Are you referring me to another company?
- Will you receive a referral fee?
- Can I obtain the same information directly from an LIT?
Consumers can also use the Office of the Superintendent of Bankruptcy’s official directory to confirm whether an individual or firm is licensed.
How Is a Credit Counsellor Different From an LIT?
A credit counsellor may help with budgeting, financial education, and repayment planning.
A counsellor may also arrange a debt management plan, often called a DMP.
A debt management plan is an informal proposal made to creditors. It usually combines eligible debts into one monthly payment and normally requires the person to repay the full principal amount.
Participating creditors may agree to reduce or remove interest or fees, but they are not automatically required to accept the plan.
A debt management plan:
- Is not a consumer proposal
- Is not bankruptcy
- Does not involve a new consolidation loan
- Does not provide the same legal protection from creditors as a formal insolvency filing
- Usually requires full repayment of the included principal
- Depends on creditor participation
A credit counsellor cannot administer a consumer proposal or bankruptcy unless that person is also a Licensed Insolvency Trustee.
Whether a debt management plan may be suitable depends on payment ability, debt amount, creditor participation, fees, interest relief, and the person’s overall circumstances.
What Happens During a Meeting With an LIT?
The meeting usually begins with a review of the person’s complete financial position.
The LIT may ask about:
- Credit card balances
- Personal loans
- Payday loans
- Tax debt
- Student loans
- Collection accounts
- Mortgage and vehicle payments
- Household income
- Monthly living costs
- Property and other assets
- Home equity
- Legal claims or wage garnishments
- Previous proposals or bankruptcies
The LIT may then explain the options available and how each one may affect:
- Monthly payments
- Total repayment
- Assets
- Credit
- Collection activity
- Legal protection
- Secured debts
- The length of the process
The meeting should give the person an opportunity to ask questions and understand the possible consequences before deciding whether to proceed.
What Responsibilities Come With a Proposal or Bankruptcy?
Consumer proposals and bankruptcies have formal responsibilities.
Depending on the proceeding, these may include:
- Providing complete and accurate financial information
- Making required payments
- Attending two mandatory financial counselling sessions
- Reporting income and expenses when required
- Informing the LIT about material financial changes
- Providing tax and other requested documents
- Following the duties and terms of the proceeding
People who begin a consumer proposal or bankruptcy are required to complete two insolvency counselling sessions with the LIT or a registered counsellor.
These sessions cover topics such as budgeting, financial management, credit use, and planning for future financial challenges.
Missing proposal payments or failing to complete bankruptcy duties may have serious consequences. The LIT should explain the exact obligations before any documents are signed.
How Do LITs Fit Into a Homeowner’s Mortgage and Debt Strategy?
Mortgage borrowing and formal insolvency are different types of solutions.
A mortgage refinance, HELOC, or second mortgage involves borrowing against the home. A consumer proposal or bankruptcy involves a formal process under federal insolvency law.
Refinancing may combine unsecured debts with a mortgage, but it also changes those debts into obligations secured against the property.
This may lower the interest rate or monthly payment in some situations, but it may also:
- Increase the total mortgage balance
- Extend repayment over more years
- Increase total interest
- Reduce available home equity
- Create fees or mortgage penalties
- Place the home at greater risk if payments are missed
At Mortgage Brain, we often see homeowners consider refinancing before speaking with an LIT. Moving unsecured debt into a mortgage can change the risks and options available. Comparing the alternatives before completing the mortgage may provide a clearer picture.
When Might Mortgage Consolidation Not Be Suitable?
Mortgage refinancing or home equity borrowing may not be suitable when:
- There is not enough available equity
- The new payment is unaffordable
- The homeowner cannot meet lender requirements
- The borrowing would only delay an ongoing monthly shortfall
- Fees and penalties make the transaction too expensive
- There is no clear repayment plan
- Previously consolidated debts have returned
- The homeowner is facing serious insolvency
A mortgage brokerage in Ontario must take reasonable steps to ensure that a mortgage presented to a client is suitable for that client’s individual needs and circumstances. The review should consider the client, the mortgage product, material risks, reasonable options, and the reasons supporting the recommendation.
If mortgage borrowing does not appear suitable, the homeowner may need information from an LIT, credit counsellor, lawyer, accountant, or another qualified professional.
Should You Refinance Before Filing a Consumer Proposal?
There is no single answer that applies to every homeowner.
Refinancing before filing a proposal may repay unsecured debts, but it also converts those balances into mortgage debt secured against the home.
Before making that change, compare:
- The debts being repaid
- The new mortgage balance
- The interest rate
- Mortgage penalties
- Lender and brokerage fees
- Legal and appraisal costs
- The new monthly payment
- The total repayment period
- The risk to the home
- The alternatives an LIT may explain
Speaking with both professionals before proceeding may be useful.
A mortgage professional can explain the proposed mortgage structure, costs, payment, lender requirements, and property risk.
An LIT can explain consumer proposals, bankruptcy, creditor rights, home equity considerations, and the legal effects of filing.
Keeping those professional roles clear helps ensure that the homeowner receives information from the properly qualified person.
Can a Mortgage Be Used to Pay Off a Consumer Proposal?
A homeowner may consider using a second mortgage, refinance, or another home equity product to pay the remaining balance of a consumer proposal.
However, this does not remove the obligation without cost. It replaces the proposal balance with debt secured against the home.
The comparison should include:
- The remaining proposal balance
- Mortgage interest
- Lender fees
- Brokerage fees
- Legal and appraisal costs
- The new monthly payment
- The amount received after fees
- The term of the new mortgage
- The balance due at the end
- The risk to the property
Paying a consumer proposal early does not guarantee a specific credit-score result.
In May 2026, the Office of the Superintendent of Bankruptcy raised concerns about lenders offering loans to pay out consumer proposals and loans promoted as improving credit scores.
At Mortgage Brain, we believe the comparison should focus on the full mortgage cost and risk to the home, not only on completing the proposal sooner.
The homeowner should consult the LIT before arranging an early payout.
Frequently Asked Questions
Is an LIT the Same as a Debt Counsellor?
No. A credit counsellor may offer budgeting support and arrange a debt management plan. Only a Licensed Insolvency Trustee can administer a consumer proposal or bankruptcy in Canada.
Do I Have to File Bankruptcy After Meeting an LIT?
No. Meeting with an LIT does not require you to file. The LIT should review your circumstances and explain available insolvency and non-insolvency options.
Does an LIT Work for Me or My Creditors?
An LIT has legal and professional duties within the insolvency process. The trustee must administer the proceeding according to federal law while accounting for the rights and obligations of both the debtor and creditors.
Can an LIT Stop Collection Calls?
A consultation alone does not stop collection activity.
When a consumer proposal or bankruptcy is formally filed, certain collection actions involving included unsecured debts may stop, subject to federal insolvency law.
Can I Keep My Home in a Consumer Proposal?
Possibly, but it is not automatic.
Home equity, mortgage payments, secured debts, affordability, and the proposed terms must be reviewed. Mortgage payments generally need to remain current if the homeowner wants to keep the property.
Can I Keep My Car?
It depends on whether the car is owned or financed, its value, available provincial exemptions, payment status, and the type of insolvency proceeding.
The LIT should review the vehicle before any filing decision is made.
Does Bankruptcy Clear Every Debt?
No. Some debts may not be discharged through bankruptcy. An LIT should review each debt and explain how it may be treated.
How Much Does a Consumer Proposal Cost?
There is no standard payment amount.
The payment depends on income, expenses, debts, assets, household circumstances, and what creditors may accept. Consumer proposals can last up to five years.
Will a Consumer Proposal Affect My Mortgage Renewal?
It may affect future borrowing or refinancing because lenders can review credit, income, equity, debt, and payment history.
A mortgage renewal with the existing lender may be different from switching lenders or refinancing. Results depend on the lender and the homeowner’s circumstances at that time.
Can I Contact an LIT Directly?
Yes. You do not need to pay a separate debt consultant for access to an LIT.
How Can I Check Whether a Trustee Is Licensed?
The Office of the Superintendent of Bankruptcy maintains an official Licensed Insolvency Trustee directory. Consumers can use it to verify a trustee or firm.
How Mortgage Brain Can Help
Mortgage Brain does not administer consumer proposals or bankruptcies and does not provide insolvency or legal advice.
Our role is to help Ontario homeowners understand mortgage-based options where appropriate.
We can review:
- Available home equity
- Existing mortgage terms
- Mortgage penalties
- Income and payment ability
- Credit history
- Existing secured and unsecured debts
- Possible refinance, HELOC, or second mortgage structures
- Estimated fees and payments
- The amount available after costs
- Risk to the property
- The repayment plan
Where appropriate, we can help homeowners compare:
- Mortgage refinancing
- A home equity line of credit
- A second mortgage
- Keeping the existing mortgage unchanged
We can also explain why mortgage borrowing may not be suitable based on the homeowner’s circumstances.
An LIT must explain and administer formal insolvency options. Mortgage Brain does not determine whether someone should file a consumer proposal or bankruptcy.
Approval, rates, fees, and available mortgage products depend on the homeowner, property, lender, and market conditions. No result can be guaranteed.
Use the Mortgage Brain mortgage calculator to estimate possible mortgage payments and better understand how additional borrowing may affect your monthly budget. Calculator results are estimates only and are not an approval, rate quote, lending commitment, or personal recommendation.
After reviewing your numbers, Contact Us to speak with a licensed Mortgage Brain professional. We can explain possible mortgage structures, estimated costs, lender requirements, property risks, and repayment considerations based on the information you provide.
Where mortgage borrowing may not be appropriate, you may also need information from a Licensed Insolvency Trustee or another qualified professional.
Final Thoughts
A Licensed Insolvency Trustee is a federally regulated professional who is legally authorized to administer consumer proposals and bankruptcies in Canada.
Meeting with an LIT does not mean you must file. It provides an opportunity to review your debts, income, expenses, assets, and possible solutions.
For homeowners, the decision may involve comparing a formal debt process with mortgage refinancing or borrowing against home equity.
These options should not be treated as interchangeable.
A refinance or second mortgage changes the structure of debt and may place more debt against the home. A consumer proposal or bankruptcy has different legal, financial, and credit consequences.
The most useful next step is to obtain information from the professional qualified to explain each option. A mortgage professional can explain mortgage borrowing. A Licensed Insolvency Trustee can explain formal insolvency solutions.
Disclaimer
This article is for general educational purposes only. It does not provide mortgage, financial, legal, tax, credit counselling, or insolvency advice.
Mortgage Brain is a licensed Ontario mortgage brokerage and does not administer consumer proposals or bankruptcies.
Mortgage products are subject to lender approval, property requirements, income review, credit review, applicable laws, and individual lender rules. Rates, fees, terms, qualification requirements, and product availability may change.
The outcome of a consumer proposal or bankruptcy depends on the person’s individual circumstances and the applicable federal insolvency process.
Mortgage Brain does not guarantee mortgage approval, debt reduction, creditor acceptance, refinancing, credit improvement, asset protection, or any particular financial outcome.
