Insolvency Counselling; The educational piece of the insolvency process required by the BIA, Bankruptcy and Insolvency Act and the OSB, Superintendent of Bankruptcy.
In Canada with each consumer insolvency, either a consumer proposal or bankruptcy, there are 2 mandatory insolvency counselling sessions required to be conducted by the LIT, Licensed Insolvency trustee or their designated, registered BIA Counsellor. The 2 insolvency counselling sessions are a mandatory requirement to receive your bankruptcy discharge or Consumer proposal certificate of compliance.
The purpose of the insolvency counselling is to assure the debtor is equipped with new money management skills to enable them a financial fresh start. The 2 mandatory insolvency sessions are designed in the following manner:
The first session – Consumer and Credit Education will teach the following skills:
(a) money management;
(b) spending and shopping habits;
(c) warning signs of financial difficulties; and
(d) obtaining and using credit.
The second insolvency counselling session will focus on- Identification of Roadblocks to Solvency and Rehabilitation;
(a) follow up on the application by the individual bankrupt or consumer debtor of the principles presented in the first session, to assist the individual bankrupt or consumer debtor to better understand his or her strengths and weaknesses with regard to money management and budgeting skills;
(b) where appropriate, assist the individual bankrupt or 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 may help him or her achieve and maintain economic stability; and,
(c) cooperatively with the individual bankrupt or consumer 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.
Beginning in 2018 the Insolvency counselling process and requirements are being improved across Canada. The OSB has created a new regulatory directive 1R4 that will enact significant new rules and requirements on who, how, where and when the LIT can provide mandatory counselling services in Canada.
Requirements: Mandatory Insolvency Counselling – 2 sessions are required per insolvency, whether that be a bankruptcy, consumer proposal or Division I proposal.
Who can provide the session: Eligible individuals include Licensed Insolvency Trustees, Registered & Eligible BIA Insolvency Counsellors. Each BIA counsellor must be pre-registered and approved by the OSB prior to completing insolvency counselling.
Who can NOT provide the sessions: Ineligible counsellors include:
(a) engaged in or involved with the provision of financing and lending services to individual bankrupts or consumer debtors including, but not limited to, credit rebuilding services, loans in various forms and insurance;
(b) employed by, associated with, or acting as an Intermediary; or
(c) employed by, associated with, or acting as a Referral Arranger.
(d) Certified BIA counsellors that have not been registered to the LIT’s individual or corporate license.
Timeline: The sessions dates need to be schedule to meet specific requirements as per the BIA. The 1st counselling session is required to be completed within 10 to 30 days from the insolvency date. The 2nd counselling session is required to be completed 60 days to 210 days from the insolvency date. There is a requirement that each session is separated by a minimum of 30 days.
Costs: There should never be any extra charge for the insolvency counselling sessions. The sessions are mandatory and included in your bankruptcy or proposal. The cost to the debtor for the insolvency counselling is $0.00. The Insolvency process does allow the trustee to claim a fee of $85.00+ tax for each session, however, that fee is paid for by the estate (AKA the creditors) not the debtor. $170.00 total for both sessions.
Where & How: In Person Insolvency Counselling is the preferred approach. The new rules require that the LIT shall provide counselling in person at an Authorized LIT office, where the original Insolvency assessment was completed and signed. In some cases, there is an alternative process which will allow for a variance to the delivery location and method. You can request to the LIT that Video conference technology be used for delivery of the counselling sessions, it is a requirement that those Video sessions must be audio recorded by the LIT for integrity and QA.
It should be noted, In-person insolvency counselling by video is subject to the following additional conditions:
(a) Both the LIT and the individual bankrupt or consumer debtor have the necessary means and capacity to participate and the LIT agrees it is feasible and appropriate;
(b) The individual bankrupt or consumer debtor only receives insolvency counselling at a location that offers privacy and that is not an office of an individual who is ineligible to be registered against an LIT’s licence pursuant to paragraph 13 of this Directive;
(c) Insolvency counselling via videoconference is provided only on an individual basis and not on a group basis, nor in the presence of an individual who is ineligible to be registered against an LIT’s licence pursuant to paragraph 13 of this Directive.
As of October 1 2018 all insolvency counselling are required to conform to these new regulations. The regulations apply to not only new insolvencies but to all existing bankruptcies and consumer proposals. The new regulations are designed to break current “offside” practices associated to LIT’s and their relationship with credit counselling associations. There will be strict compliance requirements and restrictive consequences for those LIT’s that do not comply to the new directive.
For further information on Insolvency Counselling refer to the OSB