What is Credit Counselling?

Sometimes there are other alternatives to bankruptcy

Credit Counselling is a process for assisting individuals with debt settlement through education, budgeting, and a variety of other tools with a goal of reducing and ultimately eliminating their debt.

What are Debt Management Programs?

In Canada, we are unaware of any firms that advertise being credit counsellors that offer credit education and budgeting techniques. Instead, these firms offer individuals what they refer to as a “Debt Management Program”. In British Columbia, Debt Management Programs can only be offered by firms registered as Debt Repayment Agents under the Business Practices and Consumer Protection Act of British Columbia. These firms are registered under the same legislation as debt collectors. The biggest difference is they can pool your funds to be distributed to multiple creditors.

Debt Management Programs are not a legislated process under Canadian law.  Creditors do not have to participate; creditors can agree to the plan and then later cease to continue.  Furthermore, they can, at any time, continue with legal actions. The Federal Government does not deal with Debt Repayment Agents for federal debts; so, if you owe money for income tax or student loans, a Debt Repayment Agent cannot help.

In addition, using the services of a Debt Repayment Agent will not necessarily improve your credit rating, deter the efforts of a creditor to collect a debt, or prevent legal action to recover the debt, including garnishment of your wages.

A Debt Management Program does not necessarily allow for a person’s debts to be compromised, nor does it necessarily protect the debtor from harassment, continued collection efforts, or legal actions by creditors not participating or ceasing to participate in the program. A Debt Management Plan also has a fee to the Debt Repayment Agent. This fee is in addition to the amount of your debt. Under the Business Practices and Consumer Protection Act, this fee must not be greater than 15% of the debt. In most cases, debtors will pay the debt in full over 5 years plus an additional 15%.

Consumer Proposals vs, Debt Management Programs

In most cases, a Consumer Proposal is a better alternative to a Debt Management Program. A Consumer Proposal is a formal agreement that is legislated under the Bankruptcy and Insolvency Act of Canada between the debtor and all their unsecured creditors, including Government debts. Unsecured debts include shortfalls on secured debt where the debtor voluntarily surrenders the asset or allows the asset to be seized. An example would be a shortfall on a mortgage balance after the secured creditor forecloses on the property.

A Consumer Proposal needs only to be accepted by a majority dollar value of one’s creditors, and all creditors are legally bound by the process, even if they voted against it. Once the Consumer Proposal is completed, the debtor receives a Deemed Court Order titled a Certificate of Full Performance, which extinguishes the unsecured debt.

A Consumer Proposal must be filed through a Licensed Insolvency Trustee. Be cautious, should anyone other than a Licensed Insolvency Trustee state they can help you file a Consumer Proposal, they are likely charging for their services to gather information and deliver that information to a Licensed Insolvency Trustee, an unnecessary and expensive additional step.  These services are part of the duties and obligations of a Licensed Insolvency Trustee and are included in the statutory fees and disbursements of the Licensed Insolvency Trustee when filing a Consumer Proposal. There is no need to pay a third party to assist you in gathering and organizing information.

The Trustees at D. Thode & Associates Inc. together have more than 50 years’ experience in filing Consumer Proposals. Our offices have settled debt for cents on the dollar. Payment under a Consumer Proposal varies from individual to individual but is usually based on what one can reasonably afford given their current situation. For the purposes of comparison as to costs between a Consumer Proposal and a Debt Repayment Plan by credit counsellors, we use a Consumer Proposal with a 20% payment.

Again, please remember, not all Consumer Proposals will offer a 20% payment. Some may be higher or lower and will depend on the debtor’s individual circumstances. 

Most Debt Repayment Agents will not advise the debtor that a Consumer Proposal is an alternative, because they are not licensed to file one. Typically, a Debt Repayment Agent only sells you their own product.  Debt Repayment Agents are not required to advise you as to your alternatives. They often do not know or fully understand all the alternatives available or the legal consequences of these alternatives. 

But wait, what about your credit bureau?

Under both processes you will receive an R7 rating and will be expunged from your record 3 years from completion.

Licensed Insolvency Trustees have gone through the rigorous training and education required by the Bankruptcy and Insolvency Act, are licensed by the Federal Government, and are legally required to discuss all alternatives available to debtors.

Fore more information, please contact one of the professionals at D. Thode & Associates Inc. today for a free, no obligation, consultation and find out what your options are.

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Our B.C. Offices

Should you require bankruptcy solutions and counselling outside of Burnaby & Area, D. Thode & Associates has several offices to serve you throughout British Columbia.

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