Bankruptcy Counselling vs. Credit Counselling: Which Is the Right Choice?

Bankruptcy is a challenging time for you or your business and can affect your business goals. Investments and debt add up and before you know it, you’re ready to file for bankruptcy. Everyone needs to remember that every situation is different, and filing for insolvency quickly may not be the ideal solution.

The Government of Canada has proposed new laws that instruct bankruptcy counselling concourses with every insolvency case. The 1R4 directive has been executed by the Office of the Superintendent of Bankruptcy and calls for two necessary credit counselling concourses for every bankruptcy consumer proposal. This experience is required to complete the insolvency process—without this, the debtor will not get a bankruptcy discharge or a consumer proposal certificate of compliance.

There are fees affiliated with filing for bankruptcy while in comparison, primary credit counselling is free, and enables you to examine your debt counselling choices before registering for a consumer proposal or bankruptcy.

What’s the difference between Bankruptcy Counselling and Credit Counselling?

Credit counselling is more the estimate that helps a person know their options. It includes discussing your situation and revealing the various choices possible to you in clearing your debts. A trustee’s office will do this as a free consultation. It is essential to note that this process means discovering mechanisms to pay back your debts. Most people think their only choice is to file for bankruptcy, but credit counselling helps you know and evaluate all of your choices before making the best decision.

However, in some situations, bankruptcy might be the only choice. If handling your debts and spending employees gets difficult, and intimidations of getting taken to court increase, then you may want to think about filing for bankruptcy. It helps clear your debts faster, and the process is completed efficiently for your business. Filing will halt collection activities, and the creditors will be notified. Remember, that there are fees associated with bankruptcy and that the insolvency process drops a permanent and public record.

Filing for Bankruptcy

If you decide to file for bankruptcy, remember that there are fees associated with it. In addition, you must meet the bankruptcy requirements. Two of these requirements are:

1. You must live in Canada or do business/own property in Canada.

2. The least amount in unsecured debt is $1000, and you need to have no way to trade it off and have very few properties to your name.

Once you file for insolvency, you will receive a bankruptcy discharge certificate. This certificate will effectively clean your debts but will leave you with a searchable permanent record on the OSB website. Another prime factor is that going bankrupt can make issues with loans, credit, financing, and even housing. It will cause hassles later in life, so don't forget to treat it as an absolute last resort.

Credit Counselling

It is recommended that before filing for insolvency, think going to a credit counselling consultation for help. Not only are there no restrictions to speak with qualified agents, but most companies will also do a free, no-obligation consultation.

What credit counsellors help with is analyzing your income, expenses, spending habits, and assets. Examining these factors is essential, as it helps counsellors determine which method will best tackle your unique needs. This financial evaluation is valuable in financial education as well. Your counsellor will also answer any questions you may have associated with debt. Whether you’re unsure about the best debt relief plans, or debt settlement, they will present opportunities to you on what is financially viable for your situation.

Debt Relief Options

Most people are aware of bankruptcy as a common and ideal debt relief solution. However, other alternatives need to be explored. Some common debt-relief choices are:

1. Debt consolidation

2. Handle debts on your own

3. Credit counselling

4. Consumer proposal

About Bankruptcy Counselling

A certified counsellor is a person who has been given a counselling certificate by the OSB and has had at least 100 hours of counselling. Sixty days after the filing of bankruptcy the initial stage of counselling must be initiated. The objective of this stage is to familiarize the debtor with issues such as money management, spending habits, warning signs of financial difficulties, and how to obtain and use credit.

The second stage starts within 210 days of filing the consumer proposal. The counsellor needs to arrive at an understanding with the debtor on the cause of insolvency or refer the debtor to appropriate agencies. This stage educates the debtor further on the resources and options available to them.

Remember that mandatory bankruptcy/consumer proposal counselling is different from credit counselling! These two options vary, but both offer you relief when it comes to your finances. It is up to you to decide which option suits your situation. However, go with a credit counsellor when you’re deciding because then you’re able to see all your options laid out clearly.