What is mandatory credit counselling?
Credit counselling refers to the two counselling sessions, a person filing bankruptcy or a consumer proposal, is required to take before he can be discharged from bankruptcy.
Usually the counselling sessions are held at the trustee office.
The purpose of the counselling sessions is to provide financial information skills to the debtor in the hope that these skills will better prepare the debtor to make sound financial decisions.
The Office of the Superintendent of Bankruptcy has provided the following standards for trustees to follow:
First Counselling Stage — Consumer and Credit Education
The qualified counsellor shall present information to provide the bankrupt and/or relative, or a consumer debtor, with consumer advice in the areas of:
(i) money management;
(ii) spending and shopping habits;
(iii) warning signs of financial difficulties; and
(iv) obtaining and using credit.
Second Counselling Stage — Identification of Roadblocks to Solvency and Rehabilitation
The second stage is to determine the budgetary and/or non-budgetary causes of insolvency or bankruptcy and requires that the qualified counsellor:
(a) follow up on the application by the debtor of the principles presented in the first stage to assist the debtor, to better understand his or her strengths and weaknesses with regard to money management and budgeting skills;
(b) assist, where appropriate, the bankrupt and/or relative, or a consumer debtor:
(i) to identify the non-budgetary causes (such as gambling abuse, compulsive behaviour, substance abuse, employment and marital or family difficulties) that may have contributed to his or her financial difficulties;
(ii) to better understand his or her behaviour in financial management and consumption habits; and
(iii) to make him or her aware of the existence of resources that will help him or her achieve and maintain economic stability; and
(c) cooperatively with the debtor, develop recommendations and alternatives for a financial plan of action that, if appropriate, may include referral for specialized counselling to deal with non-budgetary causes of insolvency.
So does counselling succeed in its objective to better educate debtors so they can better manage with their finances? Some trustees think that counselling is very useful; or even essential.
Saul Schwartz: Counselling the Overindebted: A Comparative Perspective (2005) https://www.ic.gc.ca/eic/site/bsf-osb.nsf/vwapj/Schwartz-2005-ENG.pdf/$FILE/Schwartz-2005-ENG.pdf
Trustees as Noted by Saul Schwartz’s Study (above):
The trustee supports mandatory counselling despite believing, as do most trustees, that bankruptcy is not often an avoidable consequence of personal irresponsibility or ignorance.
Many trustees believe that their clients’ bankruptcies are unavoidable because they are caused by events such as unemployment, illness or family disruption.
I think that counselling is ineffective for the reasons I give in this article. https://www.bankruptcycanada.com/why-counselling-should-be-discontinued.htm
Comments