I recently heard one particular Bankruptcy Trustee, now known as Licensed Insolvency Trustee(LIT), advertise free financial advice.
What does that mean? Does it mean a free one hour consultation? Or could it be they will file a consumer proposal or a bankruptcy for you and you don’t pay them any fees?
Whatever it means, nothing is usually free but costs can often be hidden if you don’t understand the process and what to look for.
I was working with a client and representing them through a particular complex bankruptcy filed with the same trustee. The trustee said to me,
“Ryan, we’re free and you charge your client a fee.”
To the untrained, it may seem to be the case. However, the trustee’s fees are hidden in the amount paid back in the consumer proposal or bankruptcy while our fees (4 Pillars) are fully disclosed and paid outside of any proposal or bankruptcy the client chooses to file. What is really interesting is the trustee fees are set by a government tariff, so they all charge the same amount. However, they charge a percentage of whatever they are able to collect and distribute to the creditors; meaning the more the consumer pays to the creditors the more the trustee gets paid.
That same trustee came to on that same client file and said,
“I want your client to pay me [the trustee] another $90,000 in order to get their discharge from bankruptcy”.
To which I responded,
“Please explain why, and I can look at the situation as that is not how the client and I understand the terms of the bankruptcy”.
By the time we had reviewed the client’s situation and the relevant section of the Bankruptcy and Insolvency Act, the $90k turned into $8k.
That tells me that my fee of $3,000 to my client was money well spent by him, and in this case the free service that would have cost him an extra $82,000 less my fee of $3,000.
In the debt industry we always say ’You either represent the debtor or the creditors and it seems impossible to do both’. To truly understand who’s representing who, following the money is a very good indication. Only a trustee can file a proposal or bankruptcy. However, the consumer always has a choice to engage their own professional representation. We are talking here about what can be the most significant financial decision they will ever make, one that can have long lasting financial consequences, as seen in the preceding real life example.
