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| Some debt relief services are regulated, but not all are regulated in the same way. Consumer proposals and bankruptcies are federal legal processes administered by Licensed Insolvency Trustees. Debt consolidation loans, credit counselling and debt settlement services may have different rules and do not offer the same legal protection. |
Not all debt relief services are the same
When people search for debt help, they see many types of companies. Some are Licensed Insolvency Trustees. Some are credit counsellors. Some are lenders. Some are debt settlement companies. Some are marketing companies that refer people elsewhere.
This can be confusing because many use similar language, such as debt relief, debt reduction or debt consolidation. The regulation and protection behind each option can be very different. Explore the full range of debt relief options.
Licensed Insolvency Trustees are federally regulated
Licensed Insolvency Trustees are licensed and regulated by the Office of the Superintendent of Bankruptcy. They are the professionals authorized to administer consumer proposals and bankruptcies in Canada. Learn more about what a Licensed Insolvency Trustee is from the Office of the Superintendent of Bankruptcy.
This matters because consumer proposals and bankruptcies are legal processes. They can provide protection from most unsecured creditor collection action once filed. The Office of the Superintendent of Bankruptcy is responsible for protecting the public in the insolvency system.
Consumer proposals and bankruptcies are formal legal options
A consumer proposal is a formal, legally binding process administered by a Licensed Insolvency Trustee. Bankruptcy is also administered by a Licensed Insolvency Trustee. Official details on consumer proposals are available from the Office of the Superintendent of Bankruptcy.
These are not simple negotiation programs. They are governed by federal law and include specific duties, notices, creditor rights and protections.
Credit counselling and debt management plans are different
Credit counselling can provide budgeting support and repayment planning. A debt management plan may involve one monthly payment and possible interest relief. It is usually an informal arrangement with creditors.
This can be helpful, but it is not the same as a consumer proposal or bankruptcy. Creditors may choose whether to participate, and the full amount is usually repaid.
Debt consolidation loans are lending products
Debt consolidation is usually a new loan used to repay several existing debts. The lender, interest rate and payment terms matter. If the loan is from a federally regulated bank, the bank is regulated, but that does not mean the loan reduces your debt or protects you from creditors.
Consolidation may simplify repayment, but it can also create more risk if the rate is high or you continue using the paid-off credit.
Debt settlement companies require caution
Some companies advertise that they can reduce debt or negotiate settlements. Before paying fees, ask what legal authority they have, whether creditors must stop collecting and whether they are Licensed Insolvency Trustees.
The Financial Consumer Agency of Canada warns consumers to be careful with companies that claim they can file a consumer proposal, because only a qualified Licensed Insolvency Trustee can help with a consumer proposal or bankruptcy. See the Financial Consumer Agency of Canada debt help alert.
Questions to ask before choosing a debt relief service
- Are you a Licensed Insolvency Trustee?
- Are you federally regulated by the Office of the Superintendent of Bankruptcy?
- Can you administer a consumer proposal or bankruptcy?
- Will creditors have to stop collection action?
- Are there upfront fees?
- Will I repay all of my debt or only part of it?
- What happens to my credit report?
The main takeaway
Debt relief services in Ontario are not all regulated in the same way. Before paying any company, find out whether you are dealing with a Licensed Insolvency Trustee and whether the solution provides legal protection.
Frequently asked questions
Who regulates Licensed Insolvency Trustees?
Licensed Insolvency Trustees are regulated by the Office of the Superintendent of Bankruptcy.
Can a debt settlement company file a consumer proposal?
Only a qualified Licensed Insolvency Trustee can help with a consumer proposal or bankruptcy.
Does debt consolidation provide legal protection?
No. Debt consolidation is a loan. It does not provide the same legal protection as a consumer proposal or bankruptcy.
Speak with a Licensed Insolvency Trustee
Speak with David Sklar & Associates for a confidential review of your debt, income, assets and monthly budget. A Licensed Insolvency Trustee can explain your options and help you choose a realistic next step. Book a free consultation today.
