Debt Relief Company vs. Licensed Insolvency Trustee: What Ontario Consumers Should Know
A debt-relief company may offer coaching, budgeting help or negotiation services, but only a Licensed Insolvency Trustee can administer a consumer proposal or bankruptcy in Canada
Key takeaways
- Only a Licensed Insolvency Trustee, or LIT, can administer a consumer proposal or bankruptcy under Canada's Bankruptcy and Insolvency Act.
- A LIT must review your financial circumstances and explain all reasonable options, not simply one product.
- Some debt-relief companies charge separate referral, consulting or document-preparation fees before connecting a consumer with a LIT.
- A consumer proposal is a formal, legally binding process. Informal debt negotiation is not the same thing.
- Ontario consumers should ask who will actually file and administer the proceeding, what every fee covers and whether a direct consultation with a LIT is available.
Why the distinction matters
When debt becomes difficult to manage, search results and advertisements can make many services sound interchangeable. You may see references to debt consultants, debt settlement, credit counselling, proposal specialists and government programs. The names can be confusing, particularly when someone is worried about collection calls, missed payments or a looming legal deadline.
The most important distinction is authority. A Licensed Insolvency Trustee is federally regulated and licensed by the Office of the Superintendent of Bankruptcy. A LIT is the only professional authorized to administer consumer proposals and bankruptcies in Canada.
A debt-relief company may provide a legitimate service, depending on its business model. However, it cannot file or administer a consumer proposal unless the work is completed through a LIT. That difference affects who controls the process, which protections may apply and how much you may ultimately pay.
Debt-relief company and LIT: a practical comparison
| Question | Debt-relief company or consultant | Licensed Insolvency Trustee |
|---|---|---|
| Can they administer a consumer proposal? | No, not independently | Yes |
| Can they administer a bankruptcy? | No | Yes |
| Is it federally licensed as an insolvency professional? | Not necessarily | Yes |
| Can they offer budgeting or informal negotiation? | Often | A LIT may also review informal and formal options |
| Are consumer-proposal fees federally regulated? | Its own consulting or referral fees may not be | LIT proposal fees are set within the regulated process |
| Does filing through them automatically create a legal stay? | No | An accepted filing can trigger the statutory stay, subject to exceptions |
This comparison does not mean every non-LIT service is improper. It means consumers should understand exactly which service they are buying and whether an additional professional must still be involved.
What a Licensed Insolvency Trustee does
A LIT's role begins with an assessment of your finances. That normally includes your income, household expenses, assets, secured debts, unsecured debts and any urgent creditor action. The goal is to determine which options are realistic and to explain their consequences.
Depending on the facts, those options may include:
- improving cash flow and repaying debt without a formal filing;
- asking creditors for revised payment terms;
- using a non-profit credit-counselling debt management plan;
- refinancing or consolidating debt, if affordable and available;
- making a consumer proposal; or
- filing an assignment in bankruptcy.
If a consumer proposal is appropriate, the LIT prepares and files the documents, communicates with creditors, receives claims and votes, administers payments and ensures that the required duties are completed. The federal government's consumer proposal overview describes a proposal as a formal, legally binding process administered by a LIT.
A LIT is not your personal lawyer or financial adviser. The trustee has statutory duties within the insolvency system and must administer the proceeding fairly. Even so, the LIT is the regulated professional who can explain how the available insolvency options would apply to your circumstances.
What a debt-relief company may offer
The term “debt-relief company” is broad. A company may sell budgeting support, loan referrals, credit-rebuilding products, informal settlement negotiation or assistance gathering information for a proposal consultation. The quality, cost and scope of these services can vary.
Some consumers first encounter an intermediary through online advertising. They may be asked to sign a service agreement or pay fees before meeting the LIT who would actually administer a consumer proposal. If that happens, ask whether the same insolvency assessment is available directly from a LIT and whether the intermediary's fee is separate from the proposal payments.
Consumer proposal vs. informal debt settlement
An informal settlement is an agreement negotiated with one or more creditors. Each creditor decides whether to participate, and a creditor that does not agree may continue its collection efforts. The arrangement does not automatically bind all affected unsecured creditors.
A consumer proposal is different. It is a proceeding under federal law. Once it is filed, a stay of proceedings generally prevents included unsecured creditors from starting or continuing many collection actions, subject to legal exceptions. Creditors then have a defined process for submitting claims and considering the offer.
If the proposal is accepted and completed, the consumer is released from the unsecured debts covered by it, subject to debts that the law does not release. Read our complete consumer proposal guide for a fuller explanation of eligibility, voting, payments and completion.
Fees: the question consumers should ask early
Price should be transparent. In a consumer proposal, the LIT's fees and expenses are paid from the proposal funds according to federal rules. They are not normally added as a separate invoice on top of the agreed proposal payment.
An intermediary may charge its own fee for consulting, referral or administrative work. That charge may be payable before a proposal is filed and may not reduce what must be offered to creditors. Before paying, request a written breakdown that answers:
- Who receives each payment?
- Is any fee refundable?
- Does the fee become part of the proposal, or is it separate?
- Will I meet the LIT before signing the service contract?
- Can I receive the insolvency assessment directly from the LIT?
- What happens if the proposal is rejected, withdrawn or annulled?
A low advertised monthly payment does not, by itself, show that an arrangement is affordable or suitable. The complete cost, the duration and the consequences of missing payments all matter.
Red flags to watch for
Be cautious if a provider:
- guarantees that creditors will accept a proposal or settlement;
- describes itself as licensed without clearly identifying the regulator and licence;
- suggests that a consumer proposal is a government grant or debt-forgiveness program;
- pressures you to pay before explaining alternatives;
- promises a specific reduction before reviewing your income, assets and creditors;
- will not identify the LIT or firm that would administer the filing;
- tells you to stop paying creditors without explaining the risks; or
- discourages you from speaking directly with a LIT.
No professional can responsibly guarantee proposal acceptance. Creditors have voting rights, and the offer must reflect both the facts of the file and what creditors are likely to receive in a bankruptcy. Learn more about what happens if creditors refuse a consumer proposal.
Questions to ask before signing anything
1. Who is the Licensed Insolvency Trustee?
Ask for the individual's full name and firm. You can verify a LIT through the federal regulator's directory. If you have not spoken with the LIT or their authorized team, clarify when that will happen.
2. What service am I purchasing today?
The agreement should say whether you are buying education, negotiation, referral, credit repair or insolvency administration. Avoid relying on verbal descriptions that do not match the contract.
3. What is the total cost?
Ask about deposits, monthly payments, taxes, cancellation fees and any amount payable to another organization. Compare the total, not only the monthly figure.
4. What alternatives were considered?
A sound assessment should consider your ability to repay, your assets, your goals and the urgency of any collection action. A proposal may be helpful, but it is not the right answer for everyone.
5. What happens if my income changes?
Proposal payments are usually fixed once accepted, while bankruptcy payments may change with income. The right choice depends on the details. Our guide to consumer proposals versus bankruptcy in Ontario explains the main trade-offs.
When to contact a LIT directly
Early advice is particularly useful when you have received a statement of claim, wage-garnishment notice, bank set-off, CRA collection notice or threat of asset seizure. It is also worth seeking help before using one debt to pay another or before missing secured payments on a home or vehicle.
You do not need to wait until every account is in collections. A confidential review can help determine whether the problem is temporary, whether a repayment plan is workable and whether formal protection should be considered.
Summary
A debt-relief company and a Licensed Insolvency Trustee do not have the same legal role. Only a LIT can administer a consumer proposal or bankruptcy in Canada. Before paying an intermediary, confirm who will handle the file, what each fee covers and whether you can obtain the insolvency assessment directly from a LIT.
If you live in Ontario and want a clear comparison of your options, submit your details here to get started.
Frequently asked questions
Is a debt-relief company the same as a Licensed Insolvency Trustee?
No. “Debt-relief company” is a general business description. A LIT is a federally licensed professional with statutory authority to administer consumer proposals and bankruptcies.
Can a debt consultant file a consumer proposal for me?
No. A consumer proposal must be administered by a LIT. A consultant may refer you or help gather information, but the LIT is responsible for assessing, filing and administering the proposal.
Do I need to pay a company before I speak with a LIT?
Not necessarily. Most LIT companies offer free consultations.
Is a consumer proposal a government debt-relief program?
It is a formal process created by federal law, but it is not a government grant. You make an offer to your unsecured creditors through a LIT, and creditors have the right to consider and vote on it.
Can a LIT guarantee that my proposal will be accepted?
No. The LIT can help develop a realistic offer, but creditors control the vote. If a majority in dollar value of voting creditors accept the proposal, the result generally binds the affected unsecured creditors, subject to the statutory process.
Will speaking with a LIT force me to file bankruptcy?
No. A consultation is an opportunity to review options. You decide whether to proceed with a consumer proposal, bankruptcy or another strategy.
How can I verify that someone is a LIT?
Ask for the trustee's full name and search the public directory maintained by the Office of the Superintendent of Bankruptcy.
About the author
Bryan Litvack, Licensed Insolvency Trustee, CPA, CA, CIRP. Bryan is a Licensed Insolvency Trustee with Litvack Group, helping individuals and families across Ontario understand consumer proposals, bankruptcy and other debt-relief options under the Bankruptcy and Insolvency Act.
Last reviewed: September 2026
Disclaimer:
This article is for general informational purposes only and is not legal or financial advice. Insolvency outcomes depend on individual facts and applicable law. Speak with a Licensed Insolvency Trustee and, where appropriate, a qualified legal professional about your situation.
