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Comparing Licensed Insolvency Trustees to Debt Counselling

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Dealing with debt is difficult. If you are having trouble paying your bills as they become due or making your debt payments, Licensed Insolvency Trustees can help. Debt counseling services are another option that can provide assistance. Determining the differences between these options is important before you proceed.

What are Licensed Insolvency Trustees?

Licensed Insolvency Trustees are trained professionals who are licensed by the federal Office of the Superintendent of Bankruptcy to provide details on debt relief options and to administer certain insolvency processes. Speaking with a Licensed Insolvency Trustee can help you understand the options available to you so you can make an informed choice to improve your financial situation.

Licensed Insolvency Trustees are subject to ongoing oversight by the Office of the Superintendent of Bankruptcy and they must adhere to strict federal standards. This includes following the Code of Ethics for Trustees. To become a trustee, a person must have a degree from a Canadian university (or equivalent) or have five years of relevant work experience in the insolvency field. Those who are members of recognized Canadian professional organizations may also be considered.

How Do Licensed Insolvency Trustees Differ from Debt Counselling?

To become licensed, a person must demonstrate that they have a solid base of experience and knowledge in the insolvency industry and complete the Chartered Insolvency and Restructuring Professional Qualification Program and the Insolvency Counsellor’s Qualification Course.

Most trustees offer a free consultation where they will review a person’s financial situation and provide them with information on the available debt relief options. Trustees are required by law to provide details on all available options, not just the ones they themselves administer.

If a person decides to file for bankruptcy or complete a consumer proposal, Licensed Insolvency Trustees are the only professionals who are authorized to administer these proceedings in Canada under the Bankruptcy and Insolvency Act.

What is Debt Counselling?

Debt counselling (often called ‘credit counselling’) is a service that provides courses, tips, and seminars on how to budget and use credit wisely. Debt counselling services also typically offer debt management plans. These are informal proposals to creditors made on the behalf of a debtor. If you decide to proceed with a debt management plan, the credit counsellor will contact your creditors on your behalf and ask if they will extend the time you have to pay your debt (which should lower your monthly payment) and/or reduce or eliminate the interest rate you are paying.

However, creditors are not obligated to work with the counsellor and many debt counselling services still charge a fee for their service even if their efforts are unsuccessful.

Debt counselling services and credit counsellors are not required to have any specialized training or certification. However, some do have training, so it is important to review their qualifications and get full details the services the provides and the fees they charge before you agree to work with any debt counselling services.

Differences between Licensed Insolvency Trustees and Debt Counselling Services

In addition to the differences in training and licensing, Licensed Insolvency Trustees and debt counselling organizations offer different services. As mentioned, only Licensed Insolvency Trustees are legally able to administer bankruptcy and consumer proposal processes.

  • Bankruptcy is a legal process designed to give those who are unable to afford to pay their debts as they become due with an option for eliminating these debts and starting their financial life fresh.
  • Consumer proposal is a legal process that allows a person who can only pay a portion of what they owe to make an offer to all their unsecured creditors to pay less than the total that is owed. With a consumer proposal, the trustee determines what a fair offer to your creditors will be. The trustee then sends this proposal to your unsecured creditors who vote on whether they wish to accept it. If the creditors that are owed the majority of the debt vote to accept, then all creditors are bound by the proposal terms.

Most Licensed Insolvency Trustees offer a free consultation, their fees are regulated by the federal government, and these fees are taken from the bankruptcy or proposal payments. Fees are not regulated for debt counselling services, so they can vary drastically depending on the organization. For this reason, it is important to fully understand the fee structure before proceeding.

Another major difference between the services offered by Licensed Insolvency Trustees and those provided by debt counselling services is that the bankruptcy and consumer proposal processes provide the debtor with legal protection from creditors. Not only is the trustee responsible for all communication with the creditors, but all legal action taken by creditors must stop once a bankruptcy or proposal is filed. Creditors are not able to take any collection action (such hiring collection agencies to call the debtor, garnishing wages, or freezing bank accounts) once the trustee files an insolvency process.

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