November 7, 2024
Credit Counsellors and Licensed Insolvency Trustees can each help you get out of debt, but what’s the difference between them? We spoke BDO Licensed Insolvency Trustee Jasmin Brown to find out.
When faced with overwhelming debt, finding the right kind of help is crucial. Credit Counsellors and Licensed Insolvency Trustees are different professionals that help Canadians get out of debt, but their roles are very different. While both are dedicated to assisting individuals in overcoming financial challenges, the services they offer vary significantly.
Most of us have heard the term “Credit Counsellor” before, but exactly what do they do? What’s the difference between them and a Licensed Insolvency Trustee? Knowing the difference can help you understand which is best to help with your situation. We spoke to BDO Licensed Insolvency Trustee Jasmin Brown to find out how these two professions differ.
A Credit Counsellor is a financial professional who helps people manage their debts and improve their overall financial situation. They offer guidance and advice on budgeting, financial planning, and other money management strategies that can help individuals gain control over their finances.
There are both not-for-profit organizations and for-profit companies that offer credit counselling services.
Credit Counsellors can look at your debts, budget, and credit score and help you make informed decisions about eliminating your debt.
“They can be helpful in some situations for people who need help with budgeting, have a small number of creditors, or only have a small amount of debt they’re struggling to pay down,” says Jasmin Brown, a BDO Licensed Insolvency Trustee.
One thing that Credit Counsellors specialize in are debt management plans. For these, a Credit Counsellor will negotiate with your creditors to combine all your unsecured debts into one monthly payment with a low interest rate, just like debt consolidation does.
Unsecured debts are debts not backed by an asset. Credit cards, personal loans and utility bills are examples of unsecured debt. Your car and home are not.
These plans do NOT reduce the amount money you owe, they merely save you money on interest. They also don’t offer the protection from wage garnishment or legal action that a consumer proposal or bankruptcy does.
As we said, there are both non-profit and for-profit credit counselling agencies. Many of these are trying to help people with their finances. There are also other companies that will call themselves “debt consultants” that are some looking to take advantage of those in need.
“We’ve seen many situations where someone has been charged extremely high fees for something that a Licensed Insolvency Trustee would have done for free,” Jasmin Brown notes.
“Credit Counsellor” is not a legally protected term, meaning Credit Counsellors are not legally required to have any specialized training. Many do have some form of training, but it’s not required by law.
If you’re considering speaking to a Credit Counsellor, make sure you do your research. Ask the Counsellor about their education, years of experience, and if they have any specialized training.
The Financial Consumer Agency of Canada’s website on Credit Counsellors provides valuable information and links for anyone considering speaking to a Credit Counsellor.
You can also look for well-regarded credit counselling agencies through official groups like:
Remember, if what you’re hearing sounds too good to be true, then it probably is. Claims such as promising to solve your debt problems quickly for a fraction of what you owe, or that they can quickly fix your credit score should raise red flags.
Licensed Insolvency Trustees also specialize in helping people get out of debt, but they have more options at their disposal.
While a credit counselling agency can help you save money on interest and provide you with the tools to get out of debt, they cannot reduce the amount you have to pay overall.
A Licensed Insolvency Trustee on the other hand, does have the power to work to lower the amount you owe.
This can be done with either a consumer proposal or bankruptcy.
A consumer proposal is a legally binding agreement between you and your creditors that allows you to settle your unsecured debts for less than the full amount owed.
A Licensed Insolvency Trustee negotiates with your creditors to come to a fair agreement for all while working to reduce the amount you owe. It also allows you to keep all your assets, including your car and home. It also stops your wages from being garnished and halts most legal actions from being taken against you by your creditors.
A consumer proposal is tailored to suit your needs, so you can afford the payments.
Only a Licensed Insolvency Trustee can file a consumer proposal.
Despite being a commonly known word, bankruptcy is only used in the direst financial situations. Bankruptcy allows you to eliminate most, if not all, of your unsecured debts, giving you a fresh financial start. In return, you may need to surrender certain assets, depending on provincial exemptions, and make payments based on your income. A first bankruptcy can be completed in as little as nine months.
Bankruptcy also prevents most legal actions from being taken against you by your creditors and your wages from being garnished.
“I know there’s somewhat of a negative stigma around bankruptcy, but it really does allow people to get a fresh financial start and begin to rebuild their finances and credit,” Jasmin says.
Most Canadians do not need to declare bankruptcy. Consumer proposals are much more common. Of 35,082 consumer insolvencies in Canada during the second quarter of 2024, 27,337 (78%) were handled using consumer proposals. Bankruptcy was necessary in only 7,745 (22%) of these cases.
Licensed Insolvency Trustees are the only professionals in Canada authorized to file government-regulated insolvency proceedings such as consumer proposals and bankruptcies.
Licensed Insolvency Trustees are themselves regulated by the federal government, ensuring that they adhere to strict ethical and professional standards. Their fees are also set by the federal government.
Beyond their technical qualifications, Licensed Insolvency Trustees are committed to providing a judgment-free environment where you can discuss your financial challenges openly.
“I understand there can be nerves when people call, but that’s usually the worst part. Having a free consultation with a Licensed Insolvency Trustee allows you to go through all your options, nothing is forced. It’s really to show you all the options you have,” says Jasmin.
They understand that debt can happen to anyone, and that each person’s situation is unique. This empathetic approach ensures that you receive tailored advice that fits your specific needs and circumstances. Their primary goal is to help you regain control of your finances and get back on track.
When you consult one of our Licensed Insolvency Trustees, you can trust that you are receiving professional advice from someone who is not only highly qualified but also dedicated to helping you find the best solution for your financial problems. Their licensing, qualifications, and compassionate approach make them a reliable and trustworthy resource during challenging financial times.
Don’t hesitate to reach out today to one of our Trustees, like Jasmin, if you need help with your finances.
November 7, 2024
Credit Counsellors and Licensed Insolvency Trustees can each help you get out of debt, but what’s the difference between them? We spoke BDO Licensed Insolvency Trustee Jasmin Brown to find out.
