Understanding Mandatory Credit Counselling: Its Implications and Importance
Undeniably, the world of finance can be a complex and uncertain domain for many. However, when financial woes lead to bankruptcy or a consumer proposal, understanding the process becomes crucial. One such aspect that is often misunderstood or overlooked is Mandatory Credit Counselling. This article aims to shed light on this topic and explain its significance.
What Is Mandatory Credit Counselling?
Mandatory Credit Counselling refers to the obligatory financial advice sessions that one must attend when declaring bankruptcy or filing a consumer proposal. Unfortunately, the term has been misused by debt consultants and debt settlement companies, creating confusion. However, the focus here is not on these businesses but on the essence of credit counselling.
Why Is Mandatory Credit Counselling Necessary?
The fundamental idea behind Mandatory Credit Counselling for bankrupt individuals is that their financial troubles may have stemmed from a lack of financial knowledge. The two sessions facilitated by your trustee aim to identify the root causes of your financial distress. They highlight the red flags of impending financial concerns and introduce strategies to avoid these issues in the future.
The Debate Around Mandatory Credit Counselling
The importance of Mandatory Credit Counselling has been questioned. The Office of the Superintendent of Bankruptcy (OSB), the government agency overseeing the insolvency process in Canada, is currently evaluating counselling, causing a shift in the nature of credit counselling services in Canada.
Some argue that the benefits of the two compulsory sessions are not evident and that credit counselling may not be necessary. However, this perspective is not universally accepted.
The Case For More Mandatory Credit Counselling Sessions
It is argued that more counselling sessions are necessary – ideally one for every year that an individual is involved in bankruptcy or a consumer proposal. The reasoning is simple. Amassing a significant amount of debt to necessitate bankruptcy or a consumer proposal is not an overnight process. It often takes years for individuals to accumulate their debt, and it may take an equal amount of time to clear their financial records and re-establish themselves financially.
Expecting someone to alter their financial habits just by instructing them to do so is unrealistic. By absolving a person’s debts without any attempt to educate them on sound financial practices, we risk making the process of bankruptcy seem too easy. This could potentially lead individuals to repeat their mistakes.
However, it is believed that Mandatory Credit Counselling is one of the reasons why so few people end up filing for bankruptcy or a consumer proposal a second time. The time and effort invested in these sessions seem a small price to pay to mitigate the risk of future financial troubles.
The Rationale Behind More Counselling Sessions
The proposal to increase the number of counselling sessions is two-pronged. The first reason aligns with the argument already stated – it takes time to develop debt, and it will require time to modify individuals’ financial habits to reduce the risk of repeating their financial woes. The second reason follows similar logic. Each subsequent credit counselling session should build on the knowledge and skills imparted in the previous session.
The existing two-session requirement does not allow sufficient time to determine if there has been a change in an individual’s attitude towards money. Moreover, these two sessions must be completed within the first seven months of a person’s bankruptcy or consumer proposal. If their proposal is going to span five years, wouldn’t it be more sensible to check-in periodically to ensure their financial behavior has indeed changed?
This article aims to provide a clearer understanding of Mandatory Credit Counselling and its implications. It is essential to remember that financial knowledge and learning are powerful tools in preventing and managing financial distress. With the right information and support, navigating through financial difficulties becomes less daunting.
