The Risks and Pitfalls of Unlicensed Debt Advisors

Too much debt is a burden—on both your financial and mental well-being. When faced with debt that is too hard to surmount alone, you need professional relief. Something that can make a big enough change in your current situation.

Yet seeking help can attract some unlicensed parties who might create more problems than benefits. These unlicensed debt advisors present themselves as experts but have far more risk than federally regulated insolvency trustees. How can you tell who is licensed or unlicensed? Let’s get the details about unlicensed debt advisors so you find the right help for your circumstances.

Debt Advisors

A “debt advisor” is a catch-all term. It refers to many kinds of roles and jobs. For example, a debt advisor could be a credit counsellor. Or they might be a financial advisor. Some are debt consultants. Since debt advisors have no backing from a government body, anyone can take on the name and call a debt expert.

What Do Unlicensed Debt Advisors Do?

Debt advisors can offer some solutions to your debt. Those solutions depend on the resources, environment, and professional advice that each debt advisor works within:

Credit counsellors

Credit counsellors usually operate in an agency and focus on providing debt advice (e.g. one-on-one budgeting, debt management plans, etc). Some counsellors may complete courses through the Accredited Financial Counsellor Canada Program. They may also become members of Credit Counselling Canada. However, you can call yourself a credit counsellor without that training.

Financial advisors

A financial advisor can offer general financial advice, including debt issues. However, they typically focus on wealth management rather than debt relief. Some may be able to refer you to lenders who can consolidate your debt into a loan.

Debt settlement companies

Debt settlement companies are larger organisations that negotiate a settlement with your creditors on your behalf. The goal is to get the credit company to agree to less than you owe. In exchange, you make a lump sum payment towards your debt.

Most companies will open an account for you if you don’t have the money to settle your debt. You deposit money into the account until you have enough to make the lump sum payment. Debt counsellors at debt settlement firms are often friendly, non-judgmental, and easy to deal with.

Pitfall of Unlicensed Debt Advisors

While unregulated, unlicensed debt advisors offer help, they do expose you to some problems:

• Lack of obligation: Credit companies do not have to accept the terms and conditions of unlicensed debt advisors. That can leave you stranded.
• Cost: You may have to pay unnecessary fees.
• Lack of enforcement: The solutions from debt advisors are not legally binding. Creditors do not need to honour terms.
• Extended settlement timeframes: A debt settlement plan can take months or years before you have enough money to make the payment.
• Legal action limitations: Credit and debt counsellors can’t stop legal action or collection activity (e.g. wage garnishment).
• Loss of time: Debt advisors may have to refer you to a Licensed Insolvency Trustee (LIT) if they can’t help you, which you could have done from the start. Yet you may pay referral fees if they send you to a LIT.
• Issue resolution: Complaints are a challenge to resolve.

Licensed Insolvency Trustees

Licensed Insolvency Trustees (LITs) are debt experts. The federal government regulates them through the Office of the Superintendent of Bankruptcy (OSB). That means they must follow the standards set by the government (e.g. completing education requirements).

Licensed Insolvency Trustees (LIT) offer advantages that unlicensed debt advisors can’t match:

• Enforcement: LIT solutions are legally binding.
• Stoppage of collections activity: Creditors must stop collection activity if your LIT files a Consumer Proposal or Bankruptcy. This includes calls, wage garnishment, and legal action.
• Costs: LITs don’t charge fees upfront.
• Expertise: LITs are specialists in all debt matters, so you can be confident in their ability.
• Debt Inclusion: Most debts, including tax debt, are included in their solutions.
• Compliance: LIT actions must comply with the Bankruptcy and Insolvency Act.
• Formal complaint processes: If you have a complaint, you can file it with the OSB or the Canadian Association of Insolvency and Restructuring Professionals (CAIRP).

How an LIT Can Help

LITs provide debt relief services that can effectively deal with your current debt issues. Two of the most common solutions are Consumer Proposals and Bankruptcy.

Consumer Proposals

A Consumer Proposal offers debt relief by:

• Reducing your debt by up to 80%
• Stopping the interest charges on the money you owe
• Preventing creditors from pursuing you for payment
• Giving you one monthly payment (which you make to your LIT who then pays your creditors).
• Including your fees in the payment so you don’t pay out of pocket
• Allowing you to keep your assets
• Giving you up to 60 months to pay off your Consumer Proposal.
• Settling most unsecured debt, including tax debt you owe to the CRA

There are some drawbacks to be aware of. Some debts are not included, such as secured debt, alimony, child support, different kinds of student loans, and court fines. A Consumer Proposal will also cause your credit rating to drop significantly, making it difficult to get credit for up to six years.

Bankruptcy

Bankruptcy is typically the last option a LIT offers. It is a solution for insolvent borrowers (you owe more than you can pay).

When you file for Bankruptcy, your creditors will stop collection activity and write off your debt. You’ll then be released from your debt obligations. It usually takes nine months before you can be discharged from Bankruptcy.

Each province has a list of assets you can keep. Any object exceeding the amount will be liquidated and sold to repay your creditors. It will take about seven years before your credit rating recovers from Bankruptcy.

Where to Get Debt Help

Unlicensed debt advisors offer plenty of helpful services. But, they cannot offer legally binding, permanent solutions to your debt. If you are looking for debt help, our Licensed Insolvency Trustees at Chase and Associates can help you. Please call the office at 1-866-317-8331 or fill out the online form for a free consultation. Take the first step towards becoming debt-free and regaining control of your finances.