If a Licensed Insolvency Trustee (LIT) in Canada rejects your Proof of Claim, you have a strict 30-day window to appeal this decision under the Bankruptcy and Insolvency Act. You must file a formal Notice of Motion at your provincial bankruptcy court, which generally involves a federal Bankruptcy Court filing fee (Motion) of exactly $50 CAD for an ordinary bankruptcy or $10 CAD for a summary bankruptcy.
When a business or individual owes you money and files for bankruptcy, you naturally expect to recover a portion of that debt. To participate in the distribution of the debtor’s assets, you submit a Proof of Claim to the Licensed Insolvency Trustee (LIT). However, discovering that the LIT has formally rejected your claim can be incredibly frustrating. Finding a knowledgeable local commercial lawyer from our directory is generally a smart first step to protect your financial interests. 📝
Under Canadian federal law, specifically the Bankruptcy and Insolvency Act (BIA), the LIT has the authority to review, accept, or disallow any creditor’s claim. They might reject it because of insufficient evidence, disputes over the debt amount, or because they believe the debt is invalid. If this happens, you will receive a formal Notice of Disallowance. You cannot simply write an angry letter to the trustee; you must utilize the formal court appeal process, governed by the BIA but administered through your local provincial court system. 📜
Step-by-Step Process in Canada
While bankruptcy is a federal matter, the appeals are heard in provincial courts, such as the Superior Court of Justice in Ontario, the Court of King’s Bench in Alberta and Manitoba, or the Supreme Court in British Columbia. Most creditors across Canada follow these structured steps to successfully challenge an LIT’s decision. 📍
Step 1: Review the Notice of Disallowance Carefully
The moment you receive the Notice of Disallowance, the clock starts ticking. This legal document will state exactly why the LIT rejected your claim. It might be a simple administrative error, such as a missing invoice, or a complex legal disagreement over a broken contract. You must understand their reasoning entirely before you can formulate a proper defence. 📄
Step 2: Gather Supporting Financial Evidence
To win an appeal, you must prove the debt is legitimate and legally enforceable. Compile every piece of evidence associated with the debt. This includes signed contracts, bounced cheques, email chains acknowledging the debt, delivery receipts, and formal account ledgers. The more airtight your documentation, the higher your chances of convincing a bankruptcy judge. 📈
Step 3: Draft the Notice of Motion
You cannot simply show up at the courthouse; you must draft a formal Notice of Motion to appeal the disallowance. This document outlines the legal and factual grounds for why the LIT was wrong to reject your claim. Your lawyer will generally pair this with a sworn Affidavit, attaching all the financial evidence you gathered in the previous step. ✍️
Step 4: File at the Local Bankruptcy Court
Once drafted, your motion must be filed at the appropriate provincial court sitting in bankruptcy matters. If the bankruptcy was filed in Toronto, you go to the Superior Court of Justice; in Calgary, the Court of King’s Bench. You must pay the federal Bankruptcy Court filing fee (Motion), which is set at exactly $50 CAD for an ordinary bankruptcy or $10 CAD for a summary bankruptcy under federal rules. The court clerk will then assign a specific date and time for your hearing. 💰
Step 5: Serve the LIT and Attend the Hearing
After filing, you must formally serve the filed Notice of Motion upon the Licensed Insolvency Trustee. On the date of the hearing, your lawyer will argue before a judge or a bankruptcy registrar. The LIT may also attend to defend their decision. The judge will review the evidence and issue an order either upholding the disallowance or ordering the LIT to admit your claim for a specific dollar amount. ⚔️
How Much Does it Cost in Canada?
Challenging a trustee’s decision involves both court fees and professional legal costs. The following estimates are current as of May 2026. 💵
| Bankruptcy Court Filing Fee (Motion) | $50 CAD (ordinary) or $10 CAD (summary) |
| Process Server (Serving the LIT) | $75 to $150 CAD |
| Commercial Lawyer Fees (Drafting & Hearing) | $350 to $850+ CAD per hour |
| Total Estimated Cost to Appeal | $2,500 to $7,500+ CAD |
How Long Does the Process Take?
Time is of the essence when dealing with bankruptcy disputes. You have exactly 30 days from the date you receive the Notice of Disallowance to file and serve your appeal. If you miss this window, the disallowance becomes final. Once filed, getting a hearing date before a bankruptcy registrar or judge typically takes 2 to 4 months, depending on how backlogged your local provincial courthouse is. ⏳️
Frequently Asked Questions (FAQ)
What happens if I miss the 30-day deadline?
If you fail to file your appeal within the strict 30-day window, the LIT’s decision becomes legally final. You will lose all rights to collect that specific debt from the bankrupt estate, and you generally cannot sue the debtor directly later.
Can I ask the court for an extension?
Yes, under section 135 of the Bankruptcy and Insolvency Act, you can apply to the court for an extension of the 30-day time limit. However, you must have a very compelling reason for the delay, and it is entirely up to the judge’s discretion to grant it.
Is it worth appealing if the estate has no money?
Generally, if the LIT has already confirmed that this is a “no-asset” bankruptcy, spending thousands of dollars on lawyer fees to appeal a disallowance makes little financial sense, as there will be no dividend paid to creditors anyway.
Can the LIT disallow only a portion of my claim?
Yes. The LIT can accept part of your claim and disallow the rest (for example, allowing the principal debt but disallowing exorbitant late fees). You can choose to accept the partial admission or appeal the disallowed portion in court.
Do I have to hire a lawyer for this?
While individuals can technically represent themselves, bankruptcy litigation is highly complex. If a corporation is filing the appeal, most provincial rules require the company to be represented by a licensed lawyer in court.
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