Credit Counsellors or Trustees. Which are Better? Ontario Credit Counselling.

Be cautious if you are considering using a Credit Counsellor

Please refer to this report on credit counsellors funded by Canadian Consumer Affairs. The report raises concerns about poorly trained credit counsellors and the conflict of interest “non profit” credit counsellors have because they are funded by credit grantors.

Credit Counsellors - What they are and how they operate

More and more credit counselling firms have opened up for business in Canada in the last ten years, fueled by the debtors’ desires to do almost anything to avoid going bankrupt. Credit grantors, in an attempt to dissuade people from filing bankruptcy, have also joined in with financial support of “non-profit” credit counselling companies.

Credit counsellors have you make regular payments under a debt repayment plan, to them and they in turn make payments to your creditors. Credit counsellors get paid by holding back a certain percent of your payments for their fees.

There are two types of credit counsellor; independent credit counsellors and ones who advertise as "non-profit". The two types of credit counsellors have similar services. The main difference is that the "non-profit" Credit Counselling firms get funding from various credit grantors such as banks, credit card companies, and department stores.

Trustees - What they are and what they do.

Ontario Bankruptcy Trustees are regulated by the federal government and have a number of ways to help people suffering a financial crisis. These can include credit counselling, refinancing, budgeting and making settlement offers or proposals.

Ontario Bankruptcy Trustees are the only debt professionals in Ontario who offer a full range of debt relief solutions, and the only debt professionals who can guarantee protection from your creditors.

Trustees in bankruptcy are highly trained professionals with a stringent code of ethics who will give you the best advice they can, even if it means you do not use their services. All trustees have at times:

advised people not to go bankrupt because they were judgment proof;
advised people on how to make an informal proposal without the services of a trustee in bankruptcy;
advised people on how they could get compassionate relief from their debts without the services of a trustee in bankruptcy;
referred people to other professionals where it was in the best interest of the debtor;
advised people on how they could avoid bankruptcy and get control of their debt by better budgeting and discipline, without the services of a trustee in bankruptcy.

Credit counsellors versus trustees in bankruptcy

Are there advantages for a person using the services of a credit counsellor rather than a trustee in bankruptcy?

Let’s consider the facts and then you decide.

Remember, that your objective is to get out of debt and re-establish a good credit rating in an honourable and cost-effective way as quickly as possible.

Key Considerations	Credit Counsellors	Trustee in Bankruptcy or a Proposal
When will my debt be erased from the credit bureau?	3 years after the debt is repaid.	Bankruptcy: 6 years after the discharge**. Proposal: 3 years after the Proposal is satisfied.
What about costs?	Credit counsellors hold back a portion of the payments you make for their fees.	Fees in almost all bankruptcies and in consumer proposals are set and regulated by the government.
Which is cheaper?		A bankruptcy or a proposal is usually cheaper.
Can income tax debt and other CRA debt be included and eventually written off?	No	Yes. Almost all debts can be written off.
Once I agree to a debt repayment plan with a credit counsellor or file for bankruptcy or a proposal, will my creditors, including CRA, be forced to stop all actions against me including trying to collect money; phoning me; garnisheeing my wages or repossessing my assets?	No. They will not be forced to stop but the creditors, that agree to a plan, will voluntarily stop collection calls and other actions.	Yes. By law, all actions must cease and garnishees are stopped or prevented once a proposal or bankruptcy is filed. Collection calls will stop once the collector knows you have filed a bankruptcy or a proposal.
Which will give me a better credit rating?		In most circumstances a bankruptcy or proposal will give you a better credit rating because it will deal with your debt more quickly thus allowing you to start to rebuild your credit sooner.
Can I pay back less then I owe and have the rest of the debt erased?	Only in rare circumstances.	Yes.
What training and education do credit counsellors and trustees in bankruptcy have?	There are no set standards. Please refer to this report on credit counsellors by Canadian Consumer Affairs. The report raises concerns about poorly trained credit counsellors and the conflict of interest “non profit” credit counsellors have because they are funded by credit grantors.	Almost all trustees have both an accounting designation and a university degree. In addition, all must complete and pass a rigorous three-year bankruptcy and law course and be investigated by the RCMP before being granted a trustee licence. Ongoing professional development is mandatory.
Are they regulated?	No	Yes, by the Federal Government. The government performs regular audits on each trustee office. Also stringent codes of ethics are in place by the Bankruptcy and Insolvency Act, the CAIRP and the accounting bodies.
What kinds of debt repayment plans are offered?	Payment plans, where monthly payments are made which are distributed to the creditors.	Bankruptcy and two kinds of Proposal.
Is Government approved Credit Counselling offered?	In some cases.	Yes. Government tested and approved counsellors provide credit counselling in all bankruptcies and consumer proposals.
What if I have a dispute?	There is no dispute mechanism in place.	You have the right to have your dispute mediated.

** The rules for a discharge from bankruptcy are given at this link.

CAUTION!

Some credit counsellors are ethical but It's an unregulated industry that has some unethical companies that only want your money.

If you have some concerns about the advice your credit counsellor has given, you have the option of getting a second opinion:

Trustees will give you a free consultation and there's no obligation to use their services.
Insolvency lawyers will charge you for 1 – 1 ½ hours of their time but it will be money well spent for your peace of mind and potential savings of thousand of dollars.

Here are some things to be aware of when dealing with credit counsellors:

Credit counsellors that advertise as "non-profit" are funded by banks, credit card companies and other credit grantors and therefore have a conflict of interest. Be careful! Their mandate is to steer people away from going bankrupt or filing a proposal. Be skeptical and you decide if they are giving the best advice for you and your family or the best advice for their sponsors the banks, credit card companies and other credit grantors.

Setting your monthly payments too high is common. We find that the Industry Canada Standards on required payments in a bankruptcy or a proposal are very accurate in establishing the maximum payments that should be made. You can calculate your maximum monthly payments by filling in this predictor.

Setting a payment plan for an extended period of time such as five or more years is common. This is almost always a very bad idea for you. Most trustees in bankruptcy feel that the term should be a maximum of three to four years. It is a stipulation in the Bankruptcy and Insolvency Act that the term for a "Consumer Proposal" be no more than five years. Terms longer than this have a very high failure rate, because people cannot see a "light at the end of the tunnel".

Some credit counsellors just want to charge you for filling out bankruptcy forms and referring you to a "very good" bankruptcy trustee. Don't pay anyone for doing this! All bankruptcy trustees have the same code of ethics and the same costs and will all give you the same service.

Some credit counsellors may try to mislead you by saying that their services will give you a better credit rating than a bankruptcy and that a bankruptcy or a proposal will ruin your credit rating. Don't be fooled! Any kind of a payment plan or bankruptcy or a proposal will be flagged by the credit bureau and will be a negative on your credit bureau report.

Some credit counsellors may try to frighten people into using their services by saying how terrible bankruptcy is. Don't be misled by these bankruptcy myths.