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Debt Consultant or Licensed Insolvency Trustee? The Pros & Cons

A Licensed Insolvency Trustee meeting with a potential client to discuss resolving debt pressures

When facing financial pressures, it's essential to seek assistance from professionals who can guide you towards a path of financial recovery. In this blog, we'll explore the pros and cons of using a debt consultant firm to manage your debts and compare it with the services provided by Licensed Insolvency Trustees (LITs).

Why You Might Want to Use a Debt Consultant Company

  1. Personalized Assistance: Debt consultants can offer personalized guidance by understanding your unique financial situation. They can develop tailored plans, provide budgeting advice, and help you negotiate with creditors, empowering you to regain control over your finances.

  2. Negotiation Support: Some Debt consultants possess experience in dealing with lenders and collection agencies. They can negotiate on your behalf to lower interest rates, waive fees, or even arrange debt settlements with your creditors. These negotiations can potentially save you money and alleviate some of your financial burden.

Why You Might Want to Avoid Using a Debt Consultant Company

  1. Lack of Regulation: Unlike Licensed Trustees, many debt consultants are not regulated or licensed professionals. Therefore, it's crucial to exercise caution and thoroughly research the credibility and qualifications of any debt consultant you consider. You must do your research (Google is a good place to start) before signing up for any sort of debt management plan. Choosing an unqualified or unregulated consultant could quickly lead to a worsening of your financial situation. Anyone can hang out a shingle advertising their services as a debt consultant. No experience necessary.

  2. Potential Fees: While some debt consultants may offer free initial consultations, they will likely charge fees for their actual services. It's essential you understand their fee structure and what services you will receive from them IN WRITING before committing to any debt management plan. Transparency is key to avoiding unexpected financial stress – you do not want to be paying for services that end up putting you further into debt.

So Why Use a Licensed Insolvency Trustee If I Can Use a Debt Consultant?

Licensed Insolvency Trustees (LITs) are professionals accredited by the government to administer insolvency proceedings. They possess in-depth knowledge of the legal framework surrounding debt relief options (the Bankruptcy and Insolvency Act) and are required to follow the legislation. They are also required by law to outline all your options to you at a free initial meeting, including alternatives to filing a consumer proposal or a bankruptcy.

If your financial situation requires formal measures like the need to file a consumer proposal or bankruptcy, only licensed insolvency trustees have the authority to provide these solutions.

This restriction means you could ultimately end up dealing with a Licensed Insolvency Trustee even if you start your financial journey with a Debt Consultant. In fact, many consultants’ business models are set up to automatically transfer your file to a Trustee as a “qualified lead” once you finish paying off your consulting fees to the Debt Consultant. Some Debt Consultants even have their “favourite” LITs they like to send files to.

Cut Out the Middleman

So why pay twice for the same service? The best solution, in 99% of cases, is to go straight to the Licensed Insolvency Trustee and cut out the middleman (the Debt Consultant). It’s the safest and the most expedient way to resolve your debt pressures. And you’ll save yourself some money at the same time.

That means if your financial situation requires legal protection or more complex solutions, consulting a Licensed Insolvency Trustee should be your first stop, not the offices of a Debt Consultant. But, as always, it's advisable to seek professional advice based on your specific financial circumstances.

If you're unsure if the company you're dealing with is a legitimate Trustee firm, the best solution is to check with the Office of the Superintendent of Bankruptcy (a division of Industry Canada). They keep a detailed list of all licensed insolvency trustees on their site (link provided here). If you don't see the company you've been talking to on their list, pick one from the list and give them a call.


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