Resolve a Debt: LITs vs. Debt Settlement Lawyers | GEM Debt Law

There are key differences between Licensed Insolvency Trustees (LITs) and Debt Settlement Lawyers that are important to consider when deciding who to approach to help resolve a debt.

In Canada, Licensed Insolvency Trustees (LITs) facilitate a Consumer Proposal and Bankruptcy. But, consider the following questions below about LITs. You may not know that there are other options available for debt relief.

Where does loyalty lie?

Licensed Insolvency Trustees (LITs) have a duty to all stakeholders in an insolvency proceeding, including: the creditors (i.e., the banks and lending companies), the Office of the Superintendent of Bankruptcy, the Court, and other affected parties. Their responsibility is to make the creditors (i.e., the banks) as whole as possible. This means Trustees may encourage debtors to resolve a debt for a larger sum of money, to ensure all parties get paid to their liking.

But, Debt Settlement Lawyers have an obligation only to the debtor. They negotiate with creditors for a smaller settlement, resolve a debt for a reduced amount, and avoid the need for Bankruptcy or Consumer Proposal. They will also negotiate with creditors to reduce your interest rates. In general, Debt Settlement Lawyers can save you from paying your creditors thousands or even tens of thousands of dollars. Debt Settlement Lawyers fees are also very affordable, since they know they are serving people in debt.

How much will be disclosed?

Since LITs have the interest of all parties, information shared with Licensed Insolvency Trustees may be disclosed to creditors, the government, and other parties involved, to resolve a debt. Be careful what you say, it could be misconstrued and costly.

Debt Settlement Lawyers must treat information shared by clients as confidential. Lawyers may disclose necessary information within legal proceedings and out-of-court negotiations, but they are not held to the same level of disclosure requirements as Licensed Insolvency Trustees. This can provide debtors with more privacy in the debt settlement process and feel secure to open up.

The way in which debtors answer questions is very important, as it can destroy a Debt Settlement negotiation. Creditors often ask dozens of questions, which Debt Settlement Lawyers can answer on behalf of each client. They know how to answer questions meticulously – on a recorded line. As well, they can coach you on how to handle any formal examination and feel confident to answer questions at a hearing.

What are they telling me to do?

Licensed Insolvency Trustees may encourage debtors to file for a Consumer Proposal. Because fees are paid by the debtor involved in the proceeding, LITs are incentivized to resolve a debt for a larger sum of money to ensure everyone gets paid more, including themselves. Trustees are paid 20% of what the debtor pays to creditors. The more you have to pay in a Consumer Proposal, the more money the Trustee makes. This is not always the best option for debtors who may have other alternatives.

Debt Settlement Lawyers work on behalf of the debtor and aim to resolve a debt for a reduced amount, often around 20-50% of the total debt. They can base their fees on how much they save the debtor, so the debtor walks away having saved a lot of money in the end. 

Debt settlement allows people to resolve a debt without filing for Bankruptcy or Consumer Proposal. It also shows a commitment to getting out of financial distress.

The Bottom Line

When it comes to Licensed Insolvency Trustees and Debt Settlement Lawyers, there are key differences to consider.

Licensed Insolvency Trustees have obligations to all parties involved in an insolvency proceeding and may encourage debtors to settle for a larger sum of money. Debt Settlement Lawyers work on behalf of the debtor and aim to resolve a debt for a reduced amount. Debtors should consider their financial situation, goals, and privacy concerns when deciding which option is best.

If you’re struggling with debt, it’s important to seek professional advice and make an informed decision that aligns with your financial goals. Contact GEM Debt Law today to speak with a representative and get the help you need to make the best decision for your situation.