When to Call a Licensed Insolvency Trustee: 7 Triggers That...

89% of Canadians under serious financial stress have not sought professional help. That number comes from MNP’s consumer debt index, and it tells you something uncomfortable: most people wait until garnishment hits or a lawsuit lands before making a phone call that should have happened months earlier. A Licensed Insolvency Trustee is the only professional in Canada legally authorized to file consumer proposals and bankruptcies under the Bankruptcy and Insolvency Act. They are not “bankruptcy people.” They are debt doctors. And the first consultation — every time, at every office — is free.

In 2025, 140,457 Canadians filed for insolvency. That is 385 filings per day. Of those, 78.4% chose consumer proposals over bankruptcy. The system works. The barrier is not access or cost. The barrier is knowing when to pick up the phone.

If you scored high on the 12 debt warning signs or recognize yourself in the later stages of debt, these triggers confirm it. If even one describes your situation, you are past the point of budgeting your way out.

Trigger 1: You Received a Garnishment Notice or Threat Letter

A garnishment notice means a creditor obtained a court judgment and your employer is legally required to redirect part of your paycheque. Provincial limits allow creditors to take 20–30% of your gross wages depending on your province. In Ontario, that is 20%. In British Columbia and Quebec, 30%.

Sarah in Hamilton owes $38,000 across three credit cards and a line of credit. She ignored collection calls for eight months. Then her employer’s HR department handed her a garnishment order — $480 per paycheque, every two weeks. Her rent is $1,850. She cannot absorb a $960 monthly hit.

What happens when you call: The LIT reviews your debts, income, and assets in a free consultation. If a consumer proposal makes sense, they file it electronically with the Office of the Superintendent of Bankruptcy. The moment that filing is registered, a stay of proceedings kicks in under the Bankruptcy and Insolvency Act. The LIT sends notice to your employer. Garnishment stops within 24–48 hours — typically by your next pay period.

The stay does not just stop garnishment. It freezes all collection activity. No more calls. No more letters. No more lawsuits. Every creditor must deal with the LIT, not with you.

Calculate how much a consumer proposal could save you →

Trigger 2: CRA Has Frozen Your Bank Account or Started Garnishing

The Canada Revenue Agency plays by different rules than private creditors. CRA does not need a court judgment to garnish. They issue a Requirement to Pay directly to your employer or your bank. No lawsuit. No warning. And here is the part that catches contractors off guard: CRA can garnish 100% of contract income. Not 20%. Not 30%. All of it.

If you are a self-employed contractor or gig worker and you owe CRA $15,000 in back taxes, they can redirect your entire next invoice payment before you see a dollar. For salaried employees, CRA garnishes at their own rates, which often exceed provincial limits.

What happens when you call: A LIT can include CRA tax debt in a consumer proposal. The stay of proceedings applies to CRA the same way it applies to credit card companies. Filing stops the Requirement to Pay. Your bank account unfreezes. If CRA already took money, that amount may be credited against your proposal payments. The LIT handles all CRA communication going forward.

David in Mississauga is a self-employed electrician who fell behind on HST remittances during a slow winter. CRA sent a Requirement to Pay to his two biggest clients. Both clients froze his payments — $11,400 sitting in limbo. His LIT filed a consumer proposal on a Tuesday. By Thursday, both clients released the funds.

Learn more about CRA debt relief options →

Trigger 3: Your Mortgage Renewal Is Coming and Your Debt Load Has Changed

Between 2025 and 2027, 2.2 million Canadian mortgages are renewing at rates 2–3 percentage points higher than the original term. If you also carry $30,000 or more in unsecured debt, your debt-to-income ratio at renewal may disqualify you from the best rates — or from renewal altogether.

Lenders calculate your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios at renewal. Every dollar of unsecured debt payment inflates your TDS. A consumer proposal eliminates 60–80% of unsecured debt and replaces multiple payments with one lower monthly amount. That directly improves your TDS ratio before your renewal date.

What happens when you call: The LIT models your current TDS with and without a consumer proposal. If a proposal drops your TDS below the lender’s threshold, you file before renewal. The proposal payment replaces all unsecured debt payments, and your mortgage renewal application goes through cleaner.

Timing matters. Filing six months before renewal gives creditors time to vote on the proposal and gives you a track record of on-time proposal payments that lenders can see.

Check your mortgage renewal exposure →

Trigger 4: You Lost Your Job and Severance Won’t Cover 3 Months of Debt Payments

A layoff turns manageable debt into a crisis overnight. If your unsecured debt payments total $1,200 per month and your severance covers four months of living expenses but not four months of debt payments, you are on a countdown. Employment Insurance replaces 55% of your income up to roughly $3,350 per month. That gap between EI and your previous income is where debt spirals start.

Marcus in Windsor lost his auto-parts manufacturing job when tariff disruptions hit his plant. He had $42,000 in unsecured debt — two credit cards, a line of credit, and a $6,800 CRA balance. His severance was $8,500. Monthly debt minimums totalled $1,340. His severance would not cover three months of minimums, let alone rent, food, and car insurance.

What happens when you call: The LIT assesses whether a consumer proposal protects your severance. In most provinces, severance is not an exempt asset — creditors can claim it. Filing a proposal before creditors obtain a judgment protects that money. Marcus filed within 10 days of his layoff notice. His $42,000 debt settled for $14,000 over 48 months — $292 per month, which he could manage on EI plus part-time income.

Read the full job-loss debt protocol →

Trigger 5: You’ve Been Paying Minimums for 2+ Years and Balances Haven’t Moved

This is the quietest trigger, and it traps more people than garnishment does. You are not in crisis. Nobody is calling. You make every minimum payment on time. But pull up your statements from two years ago and compare them to today. If the balances are within 10–15% of where they started, you are on a treadmill.

Credit card minimum payments are designed to keep you paying, not to clear the debt. A $25,000 balance at 20.99% interest with 2.5% minimum payments takes 30 years to repay and costs over $48,000 in interest. You pay almost three times the original debt. That is not a debt repayment plan. That is a business model.

What happens when you call: The LIT runs a comparison: what you will pay over time at minimums versus what a consumer proposal costs. If you owe $25,000 and a proposal settles it at 30 cents on the dollar, you pay $7,500 over 4–5 years with zero interest. You save $65,500 compared to the minimum-payment path. The math is not subtle.

A consumer proposal does affect your credit — it stays on your report for 3 years after completion. But if you have been treading water for two years already, your credit is not buying you anything useful. Clearing the debt and rebuilding credit intentionally puts you ahead faster.

Take the debt-to-income ratio quiz →

Trigger 6: A Creditor Has Filed a Statement of Claim

A Statement of Claim is a lawsuit. It means a creditor has moved past threats and hired a lawyer to obtain a court judgment against you. Once they get that judgment, they can garnish wages, freeze bank accounts, and register a lien against property. You typically have 20–30 days to file a Statement of Defence.

Ignoring a Statement of Claim results in a default judgment — the creditor wins automatically. Many Canadians do not respond because they cannot afford a lawyer or because they assume nothing will happen. Something always happens. Default judgments are easy for creditors to obtain and difficult for you to undo.

What happens when you call: Filing a consumer proposal stays the lawsuit. The creditor cannot proceed to judgment while the proposal is active. If the proposal is accepted by creditors (majority in dollar value must vote yes), the lawsuit is permanently resolved as part of the proposal. The debt is settled. The claim disappears.

Priya in Brampton received a Statement of Claim for $22,000 from a collection agency that purchased her old line of credit. She had 25 days to respond. Her LIT filed a consumer proposal on day 18. The lawsuit stopped. Her total unsecured debt of $47,000 settled for $16,500 paid over 5 years.

Understand the full timeline from debt to legal action →

Trigger 7: You Scored 7+ on the Financial Crisis Self-Assessment

The CollectorHQ financial crisis self-assessment scores your situation across income stability, debt load, collection activity, and stress indicators. A score of 7 or higher means your financial situation has crossed from “stressful but manageable” to “structural problem requiring professional intervention.”

This is not a personality quiz. It is a triage tool based on the same factors LITs evaluate during consultations. If you score 7+, the quiz is telling you what a LIT would tell you in person: informal solutions are unlikely to resolve the underlying problem. You need someone who can model the formal options.

What happens when you call: You bring your quiz results and the LIT already has a baseline of your situation. The consultation focuses on solutions rather than intake questions. You skip the “how bad is it?” stage and move straight to “here are your three options and what each one costs.”

Take the financial crisis self-assessment →

What Actually Happens When You Call a LIT

The biggest reason people delay is fear of the unknown. So here is exactly what happens, step by step.

Step 1: You call or book online. Most LIT offices offer same-week appointments. Many offer evening and Saturday consultations. Some do video calls. You do not need to bring anything to the first call, though having recent pay stubs and a list of debts helps.

Step 2: The free consultation (45–60 minutes). The LIT reviews your income, expenses, assets, and debts. They are not judging you. They do this 385 times per day across Canada. Your situation is not unusual to them, even if it feels that way to you.

Step 3: They model your options. The LIT shows you what a consumer proposal looks like (monthly payment, duration, total cost), what bankruptcy looks like (surplus income, asset implications, duration), and whether a non-insolvency option like debt consolidation or credit counselling could work instead. Roughly 20–30% of people who consult a LIT do not file anything because a simpler solution fits.

Step 4: You decide. Nothing is filed without your written consent. There is no pressure. No same-day signing requirement. You can consult multiple LITs before choosing one. The consultation itself does not appear on your credit report and has zero impact on your credit score.

Step 5: If you file, protection starts immediately. The stay of proceedings takes effect the moment the LIT files electronically with the Office of the Superintendent of Bankruptcy. Garnishment stops. Collection calls stop. Lawsuits freeze. You make one monthly payment to the LIT, and they distribute it to creditors.

What a LIT Consultation Covers vs. What They Recommend

The consultation is diagnostic. A good LIT tells you the truth about your situation even if the truth is “you don’t need me yet.” That is the difference between a LIT and a debt settlement company.

How to Find a Licensed Insolvency Trustee

Every LIT in Canada is licensed by the Office of the Superintendent of Bankruptcy. Use the CollectorHQ LIT directory to find a trustee near you, verify their license, and book a free consultation.

Before your appointment, gather:

• Recent pay stubs or proof of income
• A list of debts with approximate balances
• Any garnishment notices, Statements of Claim, or CRA letters
• Your most recent tax return

You do not need everything perfectly organized. The LIT has seen every version of financial chaos. Bring what you have.

The Bottom Line

You would not wait two years to see a doctor about chest pain. Debt that has reached the garnishment stage, the lawsuit stage, or the “I’ve been paying minimums for three years and nothing has changed” stage is the financial equivalent of chest pain. It is not going to resolve itself.

The consultation is free. It does not affect your credit. It does not commit you to anything. It gives you information you do not currently have — and that information changes the math.

140,457 Canadians made this call in 2025. If any of these seven triggers describe your situation, you already know what you need to do.

Find a Licensed Insolvency Trustee near you →

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Sources

• MNP Consumer Debt Index, Q1 2026
• Office of the Superintendent of Bankruptcy Canada — Insolvency Statistics, 2025
• Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3)
• Canada Revenue Agency — Collections policies and Requirement to Pay procedures
• CMHC — Mortgage renewal forecasts, 2025–2027