Bankruptcy Counselling vs. Credit Counselling: What Is the Right Option for Me?

Bankruptcy is a difficult time for you or your business and can greatly affect your financial goals. Expenses and debt add up and, before you know it, you’re ready to file for bankruptcy. What most people are not aware of is that every situation is unique, and filing for insolvency immediately may not be the best solution.

The Government of Canada introduced new laws that mandate bankruptcy counselling sessions with every case of insolvency. The 1R4 directive has been implemented by the Office of the Superintendent of Bankruptcy (OSB), and calls for two mandatory credit counselling sessions for every consumer proposal of bankruptcy. This is required to complete the insolvency process—without this, the debtor will not receive bankruptcy discharge or a consumer proposal certificate of compliance.

So, what does this mean for your business? There are fees associated with filing for bankruptcy, while in comparison, an initial credit counselling appointment is free, and allows you to explore your debt counselling options before filing for a consumer proposal or a bankruptcy.

Both ways are viable, so let’s explore which one is the right option for you.

What’s the difference?

Credit counselling is more the assessment that helps a person understand their options. It involves discussing your situation and uncovering the various options available to you in clearing your debts. A trustee’s office will do this as a free consultation. It is important to note that this method means figuring out mechanisms to pay back your debts. Most people think their only option is to file for bankruptcy, but credit counselling helps you understand and assess all of your options before making the best decision.

However, in some cases, bankruptcy is the only option. If managing your debts and paying employees gets hard, and threats of getting taken to court increase, then you may want to consider filing for bankruptcy. It helps clear debts faster, and the difficult process is completed efficiently for your business. Filing will stop collection activities, and all your creditors will be notified. In addition, wage garnishments and lawsuits will be halted. Remember, though, that there are fees associated with bankruptcy, and that the insolvency process leaves a permanent and public record.

Filing for Bankruptcy

If you decide to file for bankruptcy, remember that there are certain fees associated with it. In addition, you must meet the bankruptcy requirements. Two of these requirements are:

1. You must live in Canada or do business/own property in Canada.

2. The minimum amount in unsecured debt is $1000, and you must have no way to sell it off and have very few assets to your name.

Once you file for insolvency, you will obtain a bankruptcy discharge certificate. This will effectively clear your debts, but will leave you with a searchable permanent record on the OSB website. Another important point is that going bankrupt can create issues with loans, credit, financing, and housing. It creates hassles later in life, so remember to treat it as an absolute last resort.

Credit Counselling

We suggest that before filing for insolvency, consider going to a credit counselling consultation for help. Not only are there no restrictions to speak with qualified agents, but most companies will also do a free, no obligation consultation. At Kevin Thatcher & Associates, all our consultations are free, and non-judgemental. Our team has years of experience in insolvency and will help you with your debt problems efficiently, and without having to declare bankruptcy.

What credit counsellors help with is reviewing your income, expenses, spending habits, and assets. Reviewing these factors is important, as it helps counsellors determine which approach will best tackle your unique needs. This financial assessment is valuable financial education as well. Your counsellor will also answer any questions you may have related to debt. Whether you’re unsure about the best debt relief plans, or about debt settlement, they will provide options to you on what is financially viable for your situation.

Debt Relief Options

Most people are aware of bankruptcy as a viable debt relief solution. However, there are other options that need to be explored. Some common debt relief choices are:

  • Debt consolidation
  • Credit counselling
  • Consumer proposal
  • Handle debts on your own
  • Bankruptcy

The financial assessment they provide should be a good jumping off point to start handling your finances on your own.

About Bankruptcy Counselling

A qualified counsellor is a person who has been granted a counselling certificate by the OSB and has had a minimum of 100 hours of counselling. Sixty days after the filing of bankruptcy (the same applies to a consumer proposal), the first stage of counselling must be initiated. The objective of this stage is familiarizing the debtor on issues such as money management, spending habits, warning signs of financial difficulties, and how to obtain and use credit.

The second stage begins within 210 days of filing the consumer proposal. It requires the counsellor to arrive at an understanding with the debtor on the cause of insolvency or refer the debtor to appropriate agencies. This stage educates the debtor further on the resources and options available to them.

Remember that mandatory bankruptcy / consumer proposal counselling is different from credit counselling! These two options vary, but both offer you relief when it comes to your finances. It is up to you to decide which option suits your situation. However, go with a credit counsellor when you’re deciding because then you’re able to see all your options laid out clearly.

Our team is here to help you always, and without judgement. To book an appointment, call Kevin Thatcher & Associates today at 1-866-719-8547 or contact us here.

Speak to an expert today.