When dealing with a debt problem as many as 95% of people don’t seek professional support right away. Once the decision is made to get help, it’s not uncommon for people to feel overwhelmed trying to understand what resources are available, and where to turn for qualified debt advice and solutions.
There’s a lot to consider when you are deciding who best to help you with your debt. This decision is of course on top of any financial stress you’re coping with, and hesitations you might have in talking openly about your financial situation to someone who is essentially a stranger. Before speaking with any credit counsellors or debt agents, you should understand the main differences in debt services, and key questions to ask before proceeding with any debt management or restructuring plans.
Types of Debt Help Professionals in Canada
Although credit counselling and similar services may be offered under many different names, here’s an overview of the main three types of professionals offering debt help to consumers in Canada:
Licensed Insolvency Trustees
Licensed Insolvency Trustees are Canada’s only federally regulated debt help professionals, fully qualified and endorsed to provide debt advice and services to consumers.
- A Licensed Insolvency Trustee can provide you unbiased help in understanding and weighing a full range of options to deal with your debt, work with you on specialized legal debt solutions, and manage communications with virtually all creditors on your behalf.
In Canada credit counselling agencies may be private companies or non-profit organizations. Legally there is no specific training or education required to call yourself a credit counsellor or perform credit counselling services.
- Credit counsellors typically offer debt services such as: informal plans or programs where, for a fee, you can get help managing eligible debts, private financial coaching, resources around budgeting and managing your money.
Debt consultants operate under many different titles in Canada and may work as individual agents or part of a for-profit company. Like credit counsellors, they are not legally required to have any specific training or qualifications.
- The main service most debt consultants offer is to negotiate a lump-sum payment to settle your individual debts for less than you owe. If you’re willing to pay their fees they may offer this service (which may be called debt settlement, debt pooling or similar) with eligible creditors.
Without understanding the differences in services and asking the right questions, many people end up paying unnecessary costs or sinking even deeper in debt – it is crucial that you make an informed decision before moving forward with a debt solution.
Questions to Ask Your Credit Counsellor About Their Services and Plans
Asking the following key questions will help you better understand how any debt repayment plan you’re considering will work for you and your specific situation. Particularly when it comes to informal options such as credit counselling and debt pooling, many people find that with the limitations and uncertainties of these services, they don’t meet all their needs.
- What Training or Licensing Do They Have?
You want to be sure that any advice you receive is from someone knowledgeable about Canadian credit and debt.
Since only Licensed Insolvency Trustees hold an official government-qualified designation as debt help professionals, any training and certification credit counsellors or debt consultants have will be through self-regulated organizations which may vary significantly in quality and rigor. In addition, since there are no legally required training programs, many people operating as credit counsellors or debt consultants may not have any formal training at all!
At minimum you should ensure that anyone you consider working with has:
- A good standing with a legitimate provincial or national credit counselling association.
- Registered with Consumer Protection BC.
- Anyone who charges a fee to act for or represent you to your creditors must be licensed with Consumer Protection BC.
- Licensed Insolvency Trustees are exempt from this requirement because they hold a specific, Federally regulated, legal standing and designation.
Vague claims and advertising statements companies make can be confusing, and some even advertise their services as being part of a government program, which is completely misleading if they are not Licensed Insolvency Trustees. For example:
- “Licensed” alone could mean that a company simply holds a business license to operate.
- A positive Better Business Bureau (BBB) rating doesn’t necessarily mean you are dealing with a trained person.
- “Non-profit” does not mean “no cost” or convey any type of government endorsement.
If you are ever in doubt whether you are speaking with a debt professional qualified by the government, or a representative who can manage a Consumer Proposal or bankruptcy for you, ask:
“Are you a Licensed Insolvency Trustee?”
- How Will They Be Paid for Their Credit Counselling (or Other) Services?
It should never cost you money to discuss your debt options or have a consultation, but there will be costs if you decide to go forward with any type of financial restructuring plan.
Be careful seeking advice – some agents will encourage you to use their services instead of other good options you may have, because they are going to make money by helping you. Be extra vigilant if you are advised against a Consumer Proposal or personal bankruptcy by an advisor who is not qualified to assist you in either of those remedies. It’s always advisable to get an opinion from a Licensed Insolvency Trustee.
Always be clear on what your monthly payments will get you, what out-of-pocket costs you will be charged, and whether you are expected to pay upfront fees before any work will be done on your behalf. Here are a few examples of the different types of payments you could encounter:
- With some credit counsellors you will be expected to pay for monthly monitoring, consulting fees and other levies in addition to what you are expected to pay for the debt repayment amount.
- Not-for-profit credit counsellors charge administrative fees when you use their repayment programs, on top of what you pay to your creditors.
- In addition to charging you administration fees, some credit counsellors also get a percentage of the debt they recover paid to them by your creditors.
- In a debt repayment plan lasting 90 days or more, a debt consultant in BC may charge fees as much as 15% of the gross debt amount you are repaying, plus a one-time charge equal to the average monthly payment being made to an individual creditor.
- Many debt consultants also tack on additional referral and consulting fees.
- Working with a Licensed Insolvency Trustee, in a Consumer Proposal all administration costs are included, so the payment amount you offer to your creditors is all you pay.
- Will Creditors Work with Them?
Before committing to any plan or repayment program, be sure it will cover all the debts for which you need help. For example, government debts including income tax debt, student loans, or CERB overpayments can only be managed (and reduced, or forgiven completely) by working with a Licensed Insolvency Trustee.
It’s also important to find out what will happen if any creditors are not in agreement with the repayment plan you propose. Here are some key differences to consider:
- In a Consumer Proposal, acceptance by 50% (by dollar value) of your creditors means that all creditors are bound to your offer, and you are legally protected. Once accepted by this simple majority of your debts, creditors cannot change their mind or choose not to participate.
- With a credit counselling plan, you must separately repay creditors who do not agree to (or are ineligible for) your plan.
- A creditor who doesn’t accept a debt settlement offer through a debt consultant will need to be repaid in full, and you may still be asked to pay the consultant’s fees even if they weren’t able to successfully make a deal on your behalf.
Unlike Licensed Insolvency Trustees, neither debt consultants nor credit counsellors can offer you protection from your creditors; creditors may continue to contact you, garnish or seize your wages, and/or take money from your bank accounts.
- What Can You Do if You Have a Dispute?
Many people find out too late that there are few measures to keep debt consultants and credit counsellors in check. With debt repayment agents there is no federal regulatory body, no complaints or dispute processes, but there are some provincial regulations in BC that provide basic standards for licensing conditions and fee guidelines.
- BC’s debt collection and repayment regulation requires that collectors and debt repayment agents have a license to conduct business in BC, and Consumer Protection BC oversees this licensing.
- Most consumers have little recourse if there is a dispute; however, and if you choose to work with an agent outside the province (or outside Canada), you may have virtually no resources to appeal to.
Licensed Insolvency Trustees though, are overseen and regulated by the Federal Government, and there are built-in safeguards for consumers at the highest levels possible.
- The Office of the Superintendent of Bankruptcy (part of Industry Canada) is the government branch in charge of qualifying and overseeing Licensed Insolvency Trustees, and there are procedures in place for regular compliance checks, and addressing dispute or requests for mediation.
There are many factors to consider when it comes to credit counselling solutions, and these are only a few of the questions you may need to ask. You should only move forward once you have a clear, confident understanding of your options.
What You Should Ask Yourself About Credit Counselling and Other Debt Solutions
It’s important to keep your specific situation and needs in mind, so before you sign consider:
- Will I be saving money once I add in the fees and/or program costs?
- Which of my debts will this solution cover?
- Do I need (or want) protection from any of my creditors?
- Can I consistently afford the required monthly payments?
- What do I have to do throughout the process?
- Do I fully understand all the ins and outs?
- Am I feeling pressured or “sold” something that I am uncomfortable with?
The decision to use a credit counselling program, Consumer Proposal, or even bankruptcy is yours alone to make, but you aren’t alone in navigating your options. You owe it to yourself to get debt help and can safely get unbiased advice for free by contacting a Licensed Insolvency Trustee in your province.
Sands & Associates works with consumers across BC, and we pride ourselves on our empathetic and non-judgmental approach to helping people, understanding that in addition to the financial strains, there are many emotional layers to dealing with a debt problem.
Learn about your options and choose the debt-free plan that’s right for you. Get started with a free, confidential debt consultation – telephone, online and in-person services are available across BC.