Who Can Help With my Debts?

Who can you turn to if you have debt? A bank or a licensed insolvency trustee (LIT)? Both can help you, but your choice depends on your situation and level of debt. Here’s why.

In short

Banks 

They offer a variety of products (savings accounts, loans, credit cards) to help you manage your day-to-day finances. If you’re in debt, they can offer debt consolidation. This solution involves combining all your debt into one loan with a lower interest rate. However, you must meet certain criteria to be eligible.

Licensed insolvency trustees (LIT)

These experts are the only professionals who are legally authorized to manage insolvency proceedings. They can propose several solutions that can help you (consumer proposal and bankruptcy, for example). Once they set the ball rolling, they’ll handle your creditors and guide you through the process. If you have significant debt, they’re undoubtedly your best ally!

Both banks and LITs can offer you financial assistance. However, they have different roles and offer specific services.

Banks

Their role: They offer a variety of products (savings accounts, loans, credit cards) to help you manage your day-to-day finances.

Financial planners can support you in defining a savings strategy based on your planned projects (marriage, buying a home, planning your retirement, etc.). They can help you open an RRSP, TFSA, TFFHSA or any other investment or savings vehicle that meets your needs.

If you have debts: However, banks offer limited options where customers have debt problems. One of the few solutions they can suggest for you is debt consolidation.

The principle is quite simple. The bank offers you a loan that you can use to pay off all your debts at once. If you have several outstanding loans or credit card balances, you can combine them into one new loan. This allows you to benefit from a lower annual interest rate and to make only one payment every month.

However, you must meet certain criteria to be eligible for debt consolidation. You must have:

Stable employment and sufficient income;
A good credit rating;
A sufficiently low debt ratio.

If you don’t meet these criteria, the bank won’t offer you debt consolidation and you must consult a licensed insolvency trustee to find alternative solutions.

Licensed insolvency trustees

Their role: Licensed insolvency trustees are federally regulated professionals. They’re the only professionals authorized to administer insolvency proceedings in Canada. They’re licensed by the Office of the Superintendent of Bankruptcy.

If you have debt: After reviewing your financial situation, they’ll present the options that best suit your needs. The most common solutions include:

A consumer proposal: This is an agreement with your creditors to repay only a portion of your debts or repay your debt over a longer period (combining both approaches may also be possible). A consumer proposal allows you to avoid bankruptcy and protect your assets. It also minimizes the impact on your credit rating.
Personal bankruptcy: Declaring bankruptcy allows you to eliminate all your debts and get back on track. However, it’s a last resort.

What are the benefits of consulting a licensed insolvency trustee?

Licensed insolvency trustees are professionals who can offer you tailored advice.

They negotiate with your creditors on your behalf. As a result, you’re protected from any lawsuits and legal proceedings.
They’ll support you and keep you informed throughout the process.
They can give you advice to avoid falling into a debt spiral again.

In conclusion, if you have minor debt problems and a good credit rating, you should contact your bank and explore debt consolidation. However, if you have a lot of debt, a licensed insolvency trustee is your best ally.