September 5, 2017

And why should I pay anyway?

One of the primary considerations for people contemplating bankruptcy is cost.  If you call around it seems that trustee fees are all very similar but are they?

The average cost for a (no-asset and no-surplus income) bankruptcy seems to range between $1,800 -$2,400 but that is not always the case.  Trustee fees are regulated by the Bankruptcy & Insolvency Act and caps are placed on the maximum fees that trustee can take from monies collected.

Interestingly, or perhaps ironically, using the formula provided by the Act if one trustee were to charge a marginal amount more than his/her competitors the result would be a surplus amount to the trustee’s fees which would have to be divided amongst the creditors as a “dividend”.  This dividend requires the trustee to process payments (cheques) in various amounts proportionate to each creditor’s claim.

And that is one reason why there is little mobility on the upside of the fee that trustees charge – the result can be a lot more work for tiny returns to creditors.  Essentially the effect is to waste time for both the trustee and the creditors in processing the payments.

At the other end of the spectrum a trustee could charge as little as s/he needs to cover the most basic administrative costs.  However, trustees are not funded by the government we are all in business providing a professional service to people who need our help.  Accordingly we expect to not only cover costs but also to generate a reasonable profit from our business activities.  Like any other professional business we have office and advertising overhead.

Some trustees will ask for a smaller retainer and some will ask for more of their fee to be paid up front, the variability may be determined using different criteria – typically risk that the trustee will get paid.  All trustees incur initial filing fees and none want to pay that out of pocket to get your file started.

Some trustees may charge fees in addition to the payment of surplus income or payment for assets.  Some trustees may quote “their fees” over the telephone as being separate from the other costs you will be required to pay such as “counselling fees” and file “registration fees” – so be sure to enquire as to what the “total cost” to you will be.

Most trustees will work with you to facilitate monthly payments over the term of your bankruptcy administration.  But at bottom the reason you pay the trustee’s fees is to engage a well trained professional service that allows you to break free from the burden of your indebtedness and get on with your life.