Do I Need a Lawyer if I am in Debt?

Debt is stressful.  If you are stressed because of your debt, and your income doesn’t meet living expenses and the required minimum payments, you need a plan to get your finances in order.

You may receive harassing phone calls and letters from collection agencies.  You may start receiving collection/demand letters from lawyers threatening or even initiating court action which can lead to wage garnishments, seizure of assets or liens against your property.  Your first instinct is to call a lawyer.  However, is this the right call?

If your goal is to achieve relief from debt stress, prevent further collections actions against you and make a fresh start, a lawyer will likely not be necessary in most cases. You need to contact a Licensed Insolvency Trustee (“LIT”).

LIT’s are licensed and regulated by the federal government through the Office of the Superintendent of Bankruptcy and are tasked with ensuring the legal rights of debtors and creditors are balanced according to the Bankruptcy and Insolvency Act.  LIT’s have the knowledge to guide you through every step of the process to the discharge of your debts. However, you are required to fulfill certain responsibilities, so you can complete the entire process without the Courts ever being involved.

When to Seek Legal Advice

If you are a party to litigation, having legal representation may be necessary.  Though most consumer debt likely could take place in small claims court where you are able to represent yourself, a lawyer’s expertise or guidance might still be of significant required particularly if you are collecting a debt, disputing the debt, or if the matter is complex or highly consequential.   If you don’t dispute the debt and you are only trying to delay matters, you need to speak to an LIT, not necessarily a lawyer.

What about bankruptcy lawyers?

It is rare for an insolvency lawyer to become involved in consumer debt situations, as the focus of their practice tends to involve complex and corporate matters. However, if one or more of your creditors tries to petition you into bankruptcy (involuntary) or objects to your discharge from bankruptcy, then legal counsel may be necessary.  Usually when there is creditor objection to a discharge, the LIT would likely advise you to seek legal advice.  If CRA is the opposing creditor it is likely you need a lawyer, a bankruptcy lawyer, not a tax lawyer.

I owe CRA.  Do I need a tax lawyer?

If you are experiencing tax problems with Canada Revenue Agency (“CRA”) and are burdened with serious debt problems, CRA may be only one of several creditors that you have to deal with.

Why use an LIT instead of a tax lawyer? An LIT can:

  • Provide you with a full financial appraisal of your situation;
  • Deal with all of your debts while a tax lawyer only deals with your CRA debt; the rest remains;
  • Advise you on insolvency alternatives which include Division I proposal or consumer proposals , credit counseling and debt consolidation and, as a final option, bankruptcy;
  • Provide immediate protection with a Stay of Proceedings by filing a Division I Proposal, Consumer Proposal or an Assignment in Bankruptcy;
  • Advise what amounts are payable under the statute;
  • Be less expensive than using a tax lawyer because in many cases the Trustee doesn’t charge a fee over and above what the Bankruptcy and Insolvency Act requires to be paid;
  • Save you money because the actual amount required to settle using a lawyer may be higher than what debts could be settled for in a proposal or a bankruptcy;
  • Offer you a free consultation while a tax lawyer usually requires a retainer.

There are a few cases in which you may want to consult a tax lawyer:

  • Your debts chiefly or only involve CRA;
  • You are not insolvent;
  • CRA has registered liens on your property (bankruptcy does not always remove liens);
  • Communication between you and your tax lawyer is privileged; a trustee must seek and make full disclosure;
  • You can avoid a bankruptcy filing and use the voluntary disclosure rules on all of your conduct and transactions;
  • You are being prosecuted by the Department of Justice in relation to your tax reporting and therefore do require a lawyer.

Free Confidential Consultation

LITs are the only debt professionals that can administer proposals and bankruptcies.   Credit counsellors and/or debt advisors are not licensed by the OSB and have no ability to file a proposal or a bankruptcy.  This is despite what they may lead you to believe on their websites.

One of the major benefits of using an LIT is that the filing of a proposal or bankruptcy provides an immediate Stay of Proceedings on all collections actions, wage garnishments and asset seizures being taken against you. They also prevent any future action being taken as long as you honour the terms outlined by your Licensed Insolvency Trustee.

You are entitled to have or seek legal counsel at any time during a bankruptcy, however, it is rarely necessary.

At Boale, Wood & Company, we will provide you with a no charge, confidential, assessment of your financial position.  You should never pay an up-front fee to obtain advice on how to deal with debt or a fee to be referred to an LIT.

Call us.  It’s not too late. (604) 605-3335