Debt Settlement Companies vs. Licensed Insolvency Trustees: What’s the Difference?

Debt can be overwhelming, but the good news is you have options and support. For many Albertans, the first step is seeking professional help. But with different services available, like debt settlement companies and Licensed Insolvency Trustees (LITs), it’s easy to feel unsure about which path to take.

Understanding how these options differ and what safeguards exist under Canadian law can help you make a confident, informed decision about your next steps.

What is a Debt Settlement Company?

Debt settlement companies, also called debt consultants or debt relief agencies, are for-profit businesses. They work on your behalf to negotiate with creditors and reduce the total amount you owe. Typically, they aim to settle your debt through a one-time lump-sum payment for less than the full balance.

On the surface, this might sound like an ideal solution. However, you should be careful when considering debt settlement:

• Lack of Regulation: Debt settlement companies are not federally regulated, leaving you vulnerable to hidden fees or scams.

• No Legal Authority: Creditors can reject offers and continue collections or garnishments.

• High Upfront Fees: Many debt settlement companies charge significant upfront fees or a percentage of the debt.

According to the Government of Canada, some debt settlement companies charge up to 15% to 25% of your total debt in fees, which can worsen your financial strain rather than relieve it.

What is a Licensed Insolvency Trustee?

A Licensed Insolvency Trustee (LIT) is a professional licensed and regulated by the Office of the Superintendent of Bankruptcy (OSB), a branch of the federal government. LITs are the only professionals in Canada authorized to administer legally binding debt relief solutions, including Consumer Proposals and Bankruptcies.

Here’s what sets LITs apart:

1. Federal Regulation: LITs must adhere to strict federal regulations designed to protect consumers. Their fees are set by the government and are often included in your repayment plan, making them transparent and predictable.

2. Full Financial Assessment: Before recommending a solution, LITs conduct a thorough assessment of your finances. This ensures that the option you pursue is tailored to your specific situation, whether that’s a Consumer Proposal, bankruptcy, or other financial strategies.

3. Creditor Protection: Filing a Consumer Proposal or bankruptcy through an LIT offers immediate protection from creditors. Collection calls, wage garnishments, and legal actions stop as soon as your file is submitted.

4. Comprehensive Support: LITs are required to provide financial counselling to help you rebuild your credit and avoid future debt challenges.

Debt Settlement vs. Licensed Insolvency Trustee: A Side-by-Side Comparison

Aspect	Debt Settlement Companies	Licensed Insolvency Trustees (LITs)
Regulation	Not federally regulated	Federally regulated by the OSB
Legal Authority	Cannot enforce settlements	Can file legally binding proposals
Fees	Often high and upfront	Government-regulated and transparent
Creditor Protection	None	Immediate protection upon filing
Financial Counselling	Rarely provided	Mandatory counselling included
Success Rate	Uncertain, creditors may refuse	High, with formal agreements in place
Credit Reporting	Unknown, debts may not be removed from credit history	Regulated by the Credit Bureaus

Why Regulation Matters

The lack of oversight in the debt settlement industry has led to many Albertans being misled or exploited.

In contrast, LITs are federally regulated and held accountable to provide honest advice and fair treatment.

Even the Financial Consumer Agency of Canada (FCAC) warns Canadians about unregulated debt relief companies that promise to erase debt or fix credit scores instantly.

Bankruptcy Trustee vs. Debt Consultant: Clearing the Confusion

Some debt consultants may present themselves as having similar authority to a bankruptcy trustee, but only a Licensed Insolvency Trustee can administer a bankruptcy in Canada. If bankruptcy is your most viable option, an LIT will walk you through the process, ensure you understand your rights, and help minimize the long-term impacts.

Questions to Ask Before Choosing a Debt Solution

Choosing the right professional can make a significant difference in how effectively and safely you navigate debt relief. If you’re weighing debt settlement vs Licensed Insolvency Trustee, here are some questions to guide your decision:

1. Are the services regulated by the federal government?

2. Will I receive legal protection from creditors?

3. Are the fees transparent and capped by law?

4. Will I get access to financial counselling?

If the answer to any of these is “no”, it’s worth consulting a Licensed Insolvency Trustee instead.

SCB Debt Solutions: Trusted Help for Albertans

At SCB Debt Solutions, we’re proud to be Licensed Insolvency Trustees serving Albertans with compassion and integrity. We understand that debt is more than just numbers. Providing debt relief is about your peace of mind, your family, and your future. That’s why we provide:

• Personalized financial assessments.

• Legally binding debt solutions.

• Transparent, government-regulated fees.

• Protection from creditors.

• Support to rebuild your financial health.

Your financial future depends on choosing the right type of help. The difference between a debt consultant and a Licensed Insolvency Trustee comes down to security, transparency, and real results.

We offer federally regulated and legally binding solutions that protect your rights and give you real relief from debt. Whether you need a Consumer Proposal, bankruptcy advice, or guidance on rebuilding your credit, our team of Licensed Insolvency Trustees is here to support you every step of the way, with compassion, professionalism, and a clear plan to put you forward. Reach out to us today to take control of your financial future with the confidence that comes from working with Alberta’s trusted LITs.