What’s the Difference Between Credit Counselling and Bankruptcy?
Credit Counselling Vs Bankruptcy
When you’re looking for debt solutions, there are lots of options available.
Before you can decide how to deal with your debts, however, it’s essential to learn more about the industry.
As well as asking, what’s the difference between credit counselling and bankruptcy, you’ll want to know what other solutions are available to you.
By understanding the various types of debt resolution services, you can ensure that you access information from trusted sources and use the debt solution that’s most suited to your needs.
What is Credit Counselling?
Credit counselling is a term that’s frequently used to refer to voluntary consolidation plans made between a debtor and creditor.
When someone acts as an intermediary and helps you to negotiate these agreements, they may be known as a credit counsellor.
However, there is little regulation regarding credit counselling.
In fact, credit counsellors aren’t required to have any formal training or obtain any official qualifications before they begin offering their services.
While you might find some Accredited Financial Counsellors offer credit counselling services, it’s important to assess whether the individual has the qualifications, expertise and experience to enable them to give you the right advice.
Furthermore, credit counselling has become a big industry.
While there are plenty of not-for-profit organizations who offer these services, there are a significant number of for-profit companies that claim to offer credit counselling too.
Often, you’ll be charged a fee if you obtain advice or assistance for them, so this is something you might want to be aware of.
If you choose to seek out credit counselling, you will be able to have non-governmental debts addressed.
Things like your utility bills, private rent arrears or credit card debts could be consolidated via credit counselling, for example.
However, any government-related loans or debts can’t be dealt with using credit counselling.
In addition to this, no creditor is obligated to accept any proposals you make via credit counselling services.
If some but not all of your creditors accept your repayment proposal, you’ll still need to make payments to the creditors who did not agree to the alternative terms you suggested.
Although credit counselling allows you to consolidate your debts, it doesn’t write them off.
As such, you will need to continue making payments until 100% of your debts have been paid off.
What is Bankruptcy?
Bankruptcy is a legal process that culminates with your debts being discharged.
This means they are effectively written off and you will no longer have to make repayments towards them.
During the bankruptcy processes, your assets will be evaluated.
Some assets, such as household goods, may be exempt from bankruptcy proceedings but others you will need to relinquish so that they can be used to pay towards your outstanding debt.
In Canada, a bankruptcy must be dealt with by a Licensed Insolvency Trustee (LIT) and filed in accordance with the Bankruptcy and Insolvency Act.
LITs are heavily regulated and, therefore, are required to adhere to a range of professional obligations.
As well as resolving consumer-related debt, such as utility bills, bankruptcy includes government-related debts, like student loans, unpaid MSP premiums and taxes.
In addition to this, your creditors will be forced to accept your bankruptcy once it has been filed and processed, so there is no opportunity for them to insist you continue making payments to them.
Filing for bankruptcy can cost around $1,800 but this can typically be paid in instalments of $200 a month.
However, bankruptcy will mean that virtually all of your debts are discharged, so it can be one of the most cost-effective ways to deal with unmanageable debt.
Many people are reluctant to file for bankruptcy because they assume it will wreck their credit history.
Although bankruptcy does stay on your credit file for a minimum of seven years, you will have the opportunity to repair your credit rating both during and following a bankruptcy.
In contrast, repeated missed payments and mounting interest could have a long-lasting impact on your credit history and may take much longer to repair.
Choosing the Right Debt Solution
Credit counselling and bankruptcy are just two of the debt solutions available to you.
With benefits associated with each option, it’s important to access tailored advice before you make a final decision about which form of debt management is best for you.
Remember – when you’re searching for advice and information, it’s vital to seek help from a trusted and reputable organization.
By talking to a licensed insolvency trustee, you can get the information you need and be confident that you’re talking to a regulated professional.
To speak to a LIT about your situation today, contact Bankruptcy Canada now on (877)879-4770.