Debt counsellors are not “not for profit” credit counselling agencies and are actually a form of financial consultant. This often gets misconstrued because credit counselling agencies promote debt help in Ontario; what is not known is the fact that they are largely funded by the major banks and are often not the right choice if you are struggling with a financial problem.
Debt counsellors represent individuals and businesses that have problems managing their debt. They do charge a nominal fee for their services because they are not funded by anyone else. They represent you exclusively in whatever choice you make, as it relates to strategizing a way out of debt.
When you visit a debt counsellor to get debt help in Ontario, she will review all of your financial information. This includes your income, assets, liabilities and budget. She will provide you with many scenarios for you to choose from, all designed to help you deal with your debt. These scenarios could include a new budget, a debt consolidation, a debt settlement, consumer proposal or, where necessary, a bankruptcy.
Due to the fact that they do not administer bankruptcies and consumer proposals the way Bankruptcy Trustees do, they will not recommend bankruptcy or a consumer proposal as an option unless it is absolutely necessary. Bankruptcy Trustees only make money if you file a bankruptcy or consumer proposal. In the case of a bankruptcy, they are paid a tariff out of the proceeds of the bankruptcy. In the case of a consumer proposal, they are paid a percentage of the consumer proposal. If you qualify for a consumer proposal or bankruptcy, they will arrange it for you; however, that doesn’t necessarily mean it is the best choice for you. It means that it is the only choice they can offer you based on the tools they have available to them.
Debt counsellors charge a fee for debt help in Ontario because they will do a considerable amount of work while representing you and ensuring that you make the right choice for your situation. Bankruptcy Trustees do not represent you; they are officers appointed by the Superintendent of Bankruptcy to administer bankruptcies and consumer proposals. Their mandate is to administer a bankruptcy, ensuring that the creditor receives as much money as possible. While they may appear to represent you, because you sign your final paperwork with them and grant them legal status, they in fact are acting in the best interest of your creditors.
This brings us to the next reason that debt counsellors charge a fee for debt help in Ontario. If it happens that a consumer proposal is the best choice for you, there are two major reasons that you benefit from being represented by a debt counsellor:
1. In the case of a consumer proposal, the Bankruptcy Trustee gets paid based on a percentage of the consumer proposal that they arrange for you. The more they can negotiate for you to repay your creditors, the more money they will earn. This means that you may not always end up with the best deal. A debt counsellor will help to negotiate lower consumer proposals in many cases. Lower than what you would have been offered had you gone to a Bankruptcy Trustee directly, which could save you thousands!
2. A Bankruptcy Trustee will almost always try to get you to file a consumer proposal, even if you also qualify for bankruptcy. In a bankruptcy, your creditors receive much less money and so does the Trustee. If they present you with a consumer proposal as an option, as opposed to a bankruptcy, they make more money. The problem is that if in fact you are insolvent, you will inevitably end up having problems making the payments required by the consumer proposal. The payments will last for a much longer length of time when compared to a bankruptcy.
At the end of the day, if your debt has become unmanageable, it makes complete sense to obtain a financial opinion and even representation from an unbiased party. One who understands the world of finance in depth, thereby ensuring that you make responsible financial choices that protect your wallet.