Bankruptcy Lawyer or Bankruptcy Trustee – What’s the Difference?

You probably came across this blog post because you were looking for a solution for your debt problems and Googled “Toronto Bankruptcy Lawyer”.

When someone is contemplating filing for personal bankruptcy, the first thing that comes to mind is to find a bankruptcy lawyer.

What’s often surprising to discover is that in Canada, a bankruptcy lawyer cannot actually file a bankruptcy for his client – only a bankruptcy trustee can do this.

So What is A Bankruptcy Trustee?

A trustee in bankruptcy is a person licensed by the Office of the Superintendent of Bankruptcy (OSB) to file and administer bankruptcy and proposal estates. An officer of the Court, the trustee has an obligation to look after the rights of the creditors and also ensures that the rights of the debtor are not abused.

Most trustees are also professional accountants (i.e., Chartered Accountant – CA, Certified Management Accountant – CMA, and Certified General Accountant – CGA).

What Does a Bankruptcy Trustee Do?

The trustee’s primary duties are to:

• review the situation and counsel the debtor on available alternatives;

• prepare official documentation that is both filed with the OSB and used to notify creditors;

• in a bankruptcy, sell the debtor’s assets, except those exempt from seizure by provincial and federal laws, and hold the proceeds in trust for distribution to creditors;

• provide debt counselling to the debtor; and

• arrange for the discharge of the debtor’s discharge from his debts after completion of the bankruptcy or consumer proposal.

The bankruptcy trustee’s primary duty is to the bankrupt’s creditors – she acts as a fiduciary to the creditors and is accountable to them. For example, the trustee must seek permission from the creditors for the liquidation of the bankrupt’s assets, with the resulting proceeds of sale held in trust for the creditors. The trustee also needs the approval of the creditors to pay herself her professional fees, which come out of the trust funds.

What’s the Difference Between a Bankruptcy Trustee and a Bankruptcy Lawyer?

In contrast, a bankruptcy lawyer acts as the legal representative of the bankrupt only. She is generally retained by a bankrupt to act as his advocate where there is a conflict between the bankrupt’s interests and a creditor’s interests. For example, a creditor may object to a bankrupt’s discharge from bankruptcy. In this scenario, with his lawyer’s assistance, the bankrupt will have to apply to court to obtain his discharge. The creditor will attend court (usually with its own lawyer) indicating reasons why the bankrupt’s discharge should be refused or made conditional upon the performance of some act (usually the payment of money to the bankruptcy estate).

You may be familiar with the concept in the legal profession of solicitor-client privilege – this protects all communications between a lawyer and her client from being disclosed without the permission of the client. In contrast, there is no such privilege between a trustee and a bankrupt. If any information comes to the trustee’s attention that would harm the interests of the creditors, the trustee must disclose the information to the creditors, explain its consequences and seek their decision on how to deal the situation.

Finally, unlike a trustee, a lawyer cannot be licensed by the OSB to file a bankruptcy or consumer proposal. Only a licensed trustee in bankruptcy and file an insolvency proceeding in Canada.

This post should not be interpreted as legal advice or a legal opinion. Please consult your Fong and Partners Inc. advisor to review your own particular circumstances. Portions of this post were excerpted from the website of the Office of the Superintendent of Bankruptcy.

© Copyright Fong and Partners Inc 2010.