Debunking the Myths

What is the Alternative Consumer Credit market (ACCM)?

'Payday' and 'instant auto' loan companies, rent-to-own outlets, cheque cashing outlets, chattel mortgages and pawnbrokers are examples of the alternative consumer credit market (ACCM) in Canada

Is the ACCM regulated?

The ACCM is currently unregulated and there are many concerns regarding the unusually high cost of borrowing, and potentially abusive practices.

Recognizing that an increasing number of consumers do not have access to low cost credit and are forced to seek higher cost credit in an "alternative" consumer credit market, the government of Canada asked officials to work with mainstream lenders, consumer organizations and the ACCM industry on best practice guidelines, and to develop initiatives on consumer awareness and a range of regulatory options

What is a Trustee in Bankruptcy?

“A trustee in bankruptcy is a person licensed by the Superintendent of Bankruptcy to administer proposals and bankruptcies and manage assets held in trust. The trustee can give a debtor information and advice about both the proposal and bankruptcy processes and make sure that both the debtor's rights and the creditor's rights are respected. The Trustee is in the unique position of acting for all parties in administering a bankruptcy.

A Trustee in Bankruptcy can also provide debt counseling, negotiate settlement agreements and help you make a proposal to your creditors to consolidate debt and avoid bankruptcy.

How do I know if a credit counselor or debt consultant is properly certified?

While most credit counseling organizations are reputable organizations staffed by educated individuals, there is actually no legal certification, training or governing body that regulates credit counselors in Canada. We encourage you check out the individual or organization carefully and ensure you are comfortable with their qualifications and experience.

BDO often refers a number of people to credit counselors across Canada. If you would like the name of an individual or organization, please contact us.

What is the difference between a formal consumer proposal and informal proposal?

An informal proposal is a contract between a debtor and creditors that amends the terms of the original contract for payment. In order for an informal proposal to be binding on creditors, they must sign a new agreement with you. As well, there is no way to deal with a dissenting creditor, or to provide protection to the debtor while other creditors are considering the informal proposal.

A Consumer Proposal is governed by a statute, administered by a licensed Trustee in Bankruptcy, and provides protection to a debtor from the time the Consumer Proposal is filed. In addition, if there are dissenting creditors, as long as most of the creditors vote for your Consumer Proposal, the dissenting creditors have to go along. When a Consumer Proposal is completed the release of debts is binding on all creditors and is recognized by the courts.

How does a Trustee earn their fees?

A Trustee’s fees, either in a bankruptcy or in a Consumer Proposal are governed by the Bankruptcy and Insolvency Act. All of the money they are paid comes from the funds under administration, and a final accounting is circulated to all interested parties when the proceeding is complete. Sometimes in a bankruptcy file, there will not be enough money to cover a Trustee’s basic costs. In this case, the Trustee will ask the debtor for payments over the period of bankruptcy to cover basic costs. In a Consumer Proposal the Trustee will be able to explain to you how he gets paid from the monies you pay him.

How does a “Not For Profit” Credit Counsellors get paid?

Most credit counselling agencies will ask you to pay a “fair share” fee of about 10% in addition to the money they are distributing to your creditors. In addition to this, the big creditors, like banks and credit card companies, pay the agency a rebate of about 22% of the money they receive. This fee is often not disclosed. There are no regulations governing how much credit counselling agencies get paid.

How do “Private” Credit Counsellors get paid?

Private credit counsellors will ask you for an up front fee – often from $500.00 to $1,500.00. After their initial assessment, they can charge you additional money for services, or may refer you to a Trustee. There are no regulations governing the operations of Private Agencies or how much they get paid.

I’ve heard I can use the equity in my home to pay off my debts? How?

With interest rates at an all-time low and property values steadily increasing, many mortgage brokers specialize in offering mortgage re-financing to use the equity in your home home to pay down debt. This can be an effective way to consolidate and/or pay off debt but there are a few things to be aware of:

• A broker cannot always raise enough money to cover all the debt, therefore only a band-aid solution.
• Consider the new interest rate you will be charged (often much higher than current posted rates) and what that will do to your monthly mortgage payments