Effective April 1, 2017 all Trustees in Bankruptcy in Canada will officially become known as “Licensed Insolvency Trustees”. The name change has been put in place by the Office of the Superintendent of Bankruptcy and the one year compliance period to implement the change expires on April 1st. Licenced Insolvency Trustees are the only professionals licensed by the federal government to assist Canadian individuals and businesses with restructuring their debt.
While consumers may be concerned that Trustees in Bankruptcy will no longer exist as of next month, they need not worry. Licensed Insolvency Trustees (LITs) carry out the same exact services. And in fact, the new title is thought by the industry to be an even more accurate reflection of the services these professionals offer.
LITs do plenty more than just bankruptcies. For example, LITs are licensed to administer consumer proposals. A consumer proposal is a settlement reached with creditors by the LIT on behalf of a consumer. The debtor ends up paying less than the total amount owed based on what he or she can afford.
For debtors, the benefits – which are far more attractive than filing for bankruptcy – include paying less debt than owed, comparatively minimal damage to the consumer’s credit score, no interest, and the fact that once the proposal is accepted, its amount cannot be increased despite changes in financial status. And it’s not just debtors who prefer consumer proposals. Creditors end up getting paid more than they would if the debtor declared bankruptcy.
Consumer proposals are growing in number – and popularity – as compared to bankruptcy. Given the millennial generation’s financial tendencies, it’s likely this trend will only continue. According to a November 2016 Manulife Bank of Canada Debt Survey, 31% of millennials don’t feel that carrying credit card balances are a “big deal.” Moreover, millennial homeowners are unprepared for emergency expenses. Of those surveyed between the ages of 20 and 34, they report the lowest median amount of emergency funds at just $3,500.
It isn’t just millennials, either. Across the board in Canada, borrowing is steadily growing faster than income. As of the third quarter of 2016, total household credit market debt totalled $2.004 trillion, with mortgage debt accounting for 65.5% of that, up from 65.1% in the prior quarter. According to Statistics Canada, on average, the ratio of household credit market debt to adjusted disposable income is at 166.9%, up from 166.4% in the previous quarter. This means that on average, Canadians owed $1.67 in credit market debt, which includes mortgages, other loans, and consumer credit, for every dollar of disposable income.
Given these trends, it won’t be uncommon for LITs to see clients coming in by the dozens because they’ve defaulted on payday loans in a desperate attempt to get out of debt. There has already been a 4.4% increase in the number of consumer proposals from 2015 to 2016. Across Canada, that number increased to 125,907 proposals at the end of last year, from 120,261 the year before.
LITs are the only federally-regulated professionals Canadians can turn to resolve their debt, and it’s the perfect place to seek financial counsel before resorting to measures such as payday loans. Not only are LIT’s federally-regulated, but their fees are too. Often, the first consultation is free.