Understanding Mandatory Credit Counselling
Credit counselling refers to two compulsory financial management sessions for individuals declaring bankruptcy or filing a consumer proposal. Despite the misuse of the term by debt consultants and settlement companies, this article will focus on the core aspects of credit counselling.
The Need for Credit Counselling
The underlying idea behind mandatory credit counselling is that a lack of financial knowledge might have contributed to your financial troubles. These sessions, facilitated by your trustee, help you recognize the root causes of your financial issues. They highlight the red flags indicating impending financial problems and provide strategies to prevent them.
The Office of the Superintendent of Bankruptcy (OSB), which supervises the insolvency process in Canada, has been evaluating the relevance of credit counselling, thus altering the landscape of these services.
However, some may argue that the efficacy of the two mandatory sessions is unproven, and thus, unnecessary. I beg to differ.
The Importance of More Sessions
I propose more sessions – at least one annually throughout the duration of bankruptcy or a consumer proposal. The rationale behind this is that debt accumulation is a lengthy process, often taking years. Hence, it may take an equally long time to clear their debts and re-establish themselves financially.
We cannot expect an immediate change in someone’s financial habits. By erasing a person’s debts without educating them about proper financial conduct, we might inadvertently make bankruptcy seem too simple. This could lead to a vicious cycle of accumulating debt and declaring bankruptcy.
However, I believe that mandatory credit counselling is one of the reasons for the low recurrence of bankruptcy or consumer proposal filings. The small price of attending these sessions seems justified to reduce the risk of future financial problems.
The Need for Regular Check-ins
In terms of increasing the number of sessions to one per year of bankruptcy or a consumer proposal, my argument is two-pronged. Firstly, as I have mentioned, it takes time to accumulate debt and equally long to change financial habits. Secondly, each subsequent credit counselling session should build on the knowledge and skills learned in the previous one.
The current requirement of two sessions doesn’t offer enough time to adequately evaluate changes in an individual’s attitude towards money. Moreover, these sessions need to be completed within the first seven months of declaring bankruptcy or filing a consumer proposal. If the proposal runs for five years, wouldn’t it make more sense to monitor their financial behavior regularly?