credit counsellor and a trustee

What’s the Difference Between a Credit Counsellor and a Licensed Insolvency Trustee?

When you find yourself overwhelmed by debt and you are beginning to weigh the options available, you’ve likely found that there are several to consider. The two main options are a credit counselling program or a Licensed Insolvency Trustee. Below we will outline these two distinctly separate debt relief options.

Qualifications of Credit Counsellors and Licensed Insolvency Trustees

Credit Counsellors: Can be both for-profit and not-for-profit. What this means is that depending on which organization you approach, the fees you pay for their services can differ. Although some Credit Counsellors are accredited, there are no laws or regulations in place that require them to have any formal training or education. In the event of any disputes of issues, there exists no dispute resolution mechanism nor a regulatory body that you can turn to.

Licensed Insolvency Trustees (LIT): All LIT’s are accredited as they must pass numerous exams in order to obtain the LIT license from the Federal Government. In addition, LIT’s must follow all the rules and regulations outlined in the Bankruptcy and Insolvency Act and must comply with the Rules of Professional Conduct and Code of Ethics set out. In the event of any disputes of issues, there exist numerous dispute resolution mechanisms. Also, all LIT’s are overseen by a regulatory body known as the Office of the Superintendent of Bankruptcy.

What Debts Can Be Included and How Much Will I Repay?

Typically in both options, your debt payments can be consolidated into a single monthly payment. However, often under a normal credit counselling program, you will pay back 100% of yourdebts, whereas a LIT can administer options where you only repay a fraction of the total debt. The amount of your payback will depend on numerous factors such as your household income and your assets.

Probably the biggest difference between a Credit Counsellor and a Licensed Insolvency Trustee is what debts can be consolidated. As you can see from the table below there are certain debts, such as income tax debt and ICBC debt that only a LIT can help you obtain relief from.

Type of Debt Credit Counsellor Licensed Insolvency Trustee
Credit Cards ✔️ ✔️
Bank Debts (Line of Credit) ✔️ ✔️
Utility Bills ✔️ ✔️
Payday Loans ✔️ ✔️
Income Taxes ✔️
GST/HST debt ✔️
ICBC Debts ✔️
MSP debts ✔️
Other Government Debt (EI overpayment, CERB overpayment, etc.) ✔️*

*Need to be out of school for at least 7 years.

✔️ Can be included           ❌ Can NOT be included

How Will My Credit Be Affected?

Regardless of which option you chose, both will appear on your credit score as follows:

  • A filing using a Credit Counsellor will appear as an R7 on your credit score for 2-3 years after its completion.
  • A Consumer Proposal Filing with a LIT will appear as an R7 on your credit score for 2-3 years after its completion.
  • A Bankruptcy Filing with a LIT will appear as an R9 on your credit score for 6-7 years (1st time bankruptcy) or 13-14 years (2 or more bankruptcies) after its completion.

Collection Action and Creditor Agreement

A Creditor Counsellor requires a 100% agreement by each individual creditor. As such, should a creditor choose not to partake in the process they are not obligated too. In addition, creditors that are not in agreement with this plan can continue to pursue collection and legal action. Should a creditor obtain a garnishee order, they have no obligation to remove it. Also as pointed out previously, if you have any government debt, such as income tax debt, GST/HST debt, ICBC debt, CERB/EI debt, it can not be settled using this process.

One option that can only be provided by an LIT is a Consumer Proposal. Under this option, the acceptance by 50% of the voting creditors means that all unsecured creditors are bound by the Consumer Proposal and its monthly payment. Should the creditors not be willing to come to terms, the alternative to this is a bankruptcy filing which can only be filed with a LIT. In a bankruptcy proceeding, you don’t need the approval of your creditors.

Perhaps the two biggest differences between a Credit Counsellor and a Licensed Insolvency Trustee is that Licensed Insolvency Trustee is the only one that can:

  • Cease a wage garnishment, asset seizure and other collection action
  • Reduced or eliminate a balance owing to the Canada Revenue Agency or ICBC

The Cost of Administration

Regardless of which option you choose, there is always a cost of administration. The amount you are required to pay is:

Credit Counselling

  • Monthly monitoring and consultation fees and other possible hidden fees can be charged in addition to any monthly payment.
  • Fees are not regulated, so amounts of pay will differ depending on which organization you approach. Be careful!

Licensed Insolvency Trustee

  • In a Consumer Proposal, all administration costs are included in your monthly payment. There are no hidden fees or additional payments required. All fees of a LIT are regulated by the federal government and calculated by a tariff. Your one payment into the Consumer Proposal covers both the debt payment and the LIT fee.
  • In a Bankruptcy proceeding, all fees of a LIT are regulated by the federal government so again there are no hidden fees.

Which Option Is Right for Me?

It’s difficult to say which option is right for you as it will depend on your current financial situation. If you are still unsure which option is right for you, then why not reach out to one of our experienced staff members. We will meet with you in person or over that phone, at no charge, and go over all the options available to help you obtain relief from your debts.

Len Hiquebran, CPA, CA, LIT

After completing my articling at a local accounting firm, I spent some time working in industry as a controller of a logging company. Subsequently, I joined Derek L. Chase & Associates Ltd. in 2017 and began working in the insolvency field. In June 2020 I completed my studies and was granted a license by the Federal Government to be a Licensed Insolvency Trustee.