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Debt Counselling

Debt Management Terms

Want a better understanding of debt management terms?

With so many different types of professionals out there claiming to offer debt management services, we thought we would help you understand and even debunk some of these debt management terms:

Debt consolidation – A debt consolidation, traditionally, is when a lender loans you a sum of money to pay off all of your debt and then you make a single payment to them. When debt management companies discuss debt consolidation they are often referencing:

  • A credit counselling program – you make a monthly payment to a credit counselling organization for a period of time until your debt is paid.
  • A consumer proposal – a consumer proposal stops interest accruing on your debt, halts collection actions and enables you to make a single, affordable, monthly payment to a Licensed Insolvency Trustee (“LIT”). Keep in mind that this can only be administered by an LIT and often a fee is charged if you go with someone who then sends the referral to us.
  • Alternate – we have seen the emergence of companies who will gather money from you monthly over time with the promise that when you have enough saved they will make settlements with your creditors. This is extremely dangerous. You have no way of knowing whether they will exist when this ‘later’ comes (or if they’ll just disappear as has been known to happen). In the meantime, your creditors will continue to damage your credit and pursue you, and in the end you have no way of knowing if your creditors will accept said settlements once that money has accumulated. Avoid these companies like the plague.

Debt restructuring – this occurs in a consumer proposal or bankruptcy, though debt counselling companies like to throw the term around loosely when describing some of their programs, especially those programs which involve making settlements. Debt restructuring occurs when an LIT restructures your debt to fulfill the terms of a consumer proposal that you have proposed or in a bankruptcy. A debt counselling company may also mention debt restructuring if their intention is to refer you to an LIT for a consumer proposal or bankruptcy.

Making settlements – making a settlement is when a creditor agrees to accept less than what you owe in exchange for the settlement to be paid in a lump sum payment. Those who want to offer settlements with monthly payment terms should do so through an LIT for the highest chance of success. Licensed Insolvency Trustees will have a good understanding of what amount is acceptable in order for a proposal to creditors to be accepted.

Licensed Insolvency Trustee – Licensed Insolvency Trustees (“LITs”) are licensed by the Office of the Superintendent of Bankruptcy and are officers of the court. They administer bankruptcies and consumer proposals. Trustee firms may also include other professionals: estate administrators, credit counsellors, in some cases accountants, etc.

Debt counseling companies – for the most part, these are unlicensed or hold a license to offer post-bankruptcy credit counselling. Often their service is a pre-bankruptcy/proposal preparation service. You pay them a fee to refer you to an LIT. While you can go to an LIT directly and without an upfront fee, some see value in this service

Mortgage brokers – are licensed to arrange and administer mortgages.

Credit counselling companies – these are not-for-profit agencies that administer programs where your creditors agree to accept a lesser monthly payment over an extended period of time. These programs do not reduce your overall debt and have the same impact to credit as a consumer proposal or bankruptcy.

To clear up any further confusion regarding debt management terms please contact us.


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August 1, 2017

WHY YOU SHOULD NOT HIRE A NON-LICENSED DEBT CONSULTANT OR CREDIT COUNSELLOR

A few things to keep in mind before committing to working with a non-licensed credit counsellor or debt consultant.

a) Unlike Licensed Insolvency Trustees (LIT), credit counsellors and debt consultants are unregulated. Anyone can call themselves a credit counsellor or a debt consultant. They are not subject to formal training or professional development standards.Read More

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