J. Douglas Hoyes, CA, Trustee : Recent Articles

If you have too much debt, there are five options for eliminating debt.  Here’s my short video explaining your debt management options:

I explain these five debt busting options in the video:

1. Personal budgeting: Make a budget, and pay off your debts on your own.  (I’m not a big fan of budgeting, since it’s hard, so you can read my post on why budgeting is a bad idea, and what you can do to manage your money without budgeting).
2. Debt Consolidation Loan: A debt consolidation loan is a loan used to pay off multiple smaller debts. It allows you to combine multiple payments into one smaller monthly payment, generally at a lower interest rate and spread over a longer period of time. Of course debt consolidation doesn’t reduce your debt, unless you can pay more towards the principal each month.
3. Credit Counselling: A credit counsellor can negotiate repayment plan where you pay your debts in full, but at a reduced interest rate. This is called a “Debt Management Plan” and works well if you can repay your debts in full.
4. Debt Settlement: A debt settlement is an arrangement negotiated with a creditor where you pay a portion of the amount owing. If you owe $20,000, you could offer to pay $8,000 as a lump sum to settle the debt, or you could offer to make payments over time. If the debt is old, and if you have a lump sum of money, this may be a viable solution. However, if you have many debts, you must reach an agreement with each creditor, which may not be possible.
5. Consumer Proposal: A consumer proposal is a legally binding settlement between a debtor and a creditor. It typical involves the debtor making one monthly payment, on an agreed upon settlement amount, over a period of no more then 5 years. At the end of the proposal period the debtor is then released of any remaining balances, which may be left from their original amount of debt.
6. Bankruptcy: In an Ontario bankruptcy an individual surrenders certain assets to a trustee, in order to be absolved of their debts. They are then legally declared bankrupt and required to adhere to the duties of a bankrupt, in order to obtain an absolute discharge, at the end of their bankruptcy term.

Douglas Hoyes, Co-Founder, Hoyes, Michalos & Associates Inc.

The Office of the Superintendent of Bankruptcy just released bankruptcy statistics for the months of September and October, 2011, and the results showed that bankruptcies are down considerably from last year. For the year ended October 31, 2011, personal bankruptcy filings in Ontario dropped by almost 24%. Consumer proposal filings increased by 7.3%. Combining bankruptcies and proposals, consumer insolvencies are down over 11% from last year. Across Canada the rate dropped by 8%, so Ontario’s performance is better than the national average.

(For information on local results, you can read our commentaries on the results in Brantford, Mississauga, Cambridge, St. Catharines, Toronto bankruptcy, Toronto consumer proposals, Vaughan, and Windsor).

A drop in bankruptcy filings in Canada is good news, right?

Yes, in general, fewer bankruptcies is good news for the economy. Fewer insolvencies implies that more people are working and are able to service their debts, and that’s good news for everyone.

Next question: will bankruptcy levels continue to drop in 2012?

Probably not, for four reasons:

First, when the unemployment rate decreases, bankruptcy rates tend to decrease. That makes sense; if more people are working, more people are making money, so fewer people have debt problems. However, according to Statistics Canada, the unemployment rate dropped to a multi-year low of 7.1% in October, and has been increasing every month since, and in January hit 7.5%. It’s therefore quite possible that the increase in the unemployment rate at the end of 2011 will lead to more bankruptcy filings in 2012.

Second, the average debt level of all Canadians continues to increase. According to Statistics Canada, in the third quarter of 2011 Canadians were carrying debt equal to 153% of their annual disposable income. That’s the highest level in history, and it means if you earn $1, you probably have debt of $1.53. That a huge number, and it doesn’t take a lot of thinking to realize that the more debt we have, the more likely we are to get into financial trouble.

In other words, we now consider high debt levels to be normal. Twenty years ago you were very worried if you couldn’t pay your credit card bill in full each month. Today we think it’s normal to just pay our minimum monthly balance.

Third, we are used to high levels of debt, but the lenders are also getting used to it. TD Bank Chief Executive Ed Clark said at a banking conference on Tuesday that the lender would be reluctant to push someone out of their house if they can no longer afford payments if it was still comfortable with the mortgage. Think about that statement: banks don’t want to foreclose on your house. Great news, right?

Yes, but are banks not pressuring borrowers as much out of the goodness of their hearts? Not exactly. The banks realize that if they were to foreclose on everyone’s mortgage that is one or more payments in arrears, they might own many of the houses in Canada! So, instead, they are willing to work with you, at least up to a point. That’s good, because if they are working with you, you are less likely to need to go bankrupt.

But what happens when your mortgage gets so far behind that the bank can’t work with you anymore? They may waive a payment if you are a month behind on your credit card, but will they do nothing if you are three months behind? At some point the bank must take action, and if they do that in 2012, we could see an increase in consumer insolvencies.

There is a final reason why it is possible that bankruptcy filings will increase in 2012: “debt consultants”.

At Hoyes Michalos we believe you should understand that the debt consultants you hear making wild promises on the radio are not always telling the whole truth, which is why we have written many articles like The Problem with Debt Consultants, Debt Consultants: Why Doesn’t The Government Stop Them?, and Debt Consultants: Some Horror Stories.

The fact is that in Ontario many thousands of people are paying money, right now, to debt consultants to solve their financial problems. These debt consultants have a simple sales pitch:

We can settle your debts for 30 cents on the dollar. Pay us $500 (or whatever) per month, and after three years we will have accumulated the money we need to make a settlement with your creditors.

That sounds great. Unfortunately, most credit card companies won’t wait for three years to get paid. I can guarantee you that Revenue Canada won’t wait for three years to get paid. After a few months of non-payment they are likely to start garnisheeing your wages, at which point the debt settlement plan collapses.

My prediction for 2012: we will do hundreds of bankruptcies and consumer proposals for people who paid thousands of dollars to debt consultants only to realize they got scammed. Why are bankruptcy numbers down? One reason is because instead of filing bankruptcy, many people are paying debt consultants. Those people may well need to go bankrupt in 2012, so when those people enter the system, bankruptcy filings will jump.

(This is an easy prediction for me to make, because in the last two months the professionals at Hoyes Michalos, myself included, have met with over 100 people who are currently in plans with debt consultants, but now they realize they need to file a consumer proposal or go bankrupt).

So what does this mean to you: Don’t be a statistic.

If you realize that your debt consultant isn’t helping you, give us a call. If you have a lot of debt, try to deal with it on your own. Here’s my advice on the easy way to budget:

Or, to find out all of your options, give us a call at 310-PLAN, and we’ll arrange a no charge initial consultation to help you deal with your debts, so let’s get started.

It appears that I created a bit of a controversy last week with my post on Why Budgeting is a Bad Idea. I wasn’t trying to upset anyone; all I wanted to do was make a simple point:

Doug Hoyes still smiling, and still not budgeting

Budgeting is hard. Most people who try to make a budget stick with it for a week or two, or a month, but then they get off track. (Here’s an article on the Top Five Reasons For Not Budgeting in Canada; are these your reasons as well?) There’s no point in devoting a lot of time and energy to something with limited chances of success.

However, I am a strong believer in learning to manage your money. If you don’t know where your money is going, you can’t pay your bills, or have a savings plan. So last week I shared my answer to the budgeting problem. I said:

Don’t budget. Just pay your bills every time you get paid.

Simple. Instead of trying to pay your rent on the 1st, your hydro bill on the 8th, car insurance on the 12th, and cable and phone on the 22nd, simply divide all of your bills by however often you get paid, and pay them on payday. If you get paid every week, and your phone bill is $100 per month, pay $25 every week, on-line, using internet banking.

Simple.

I even explained it in this video:

And for those who want more details on exactly how to do it, I recorded a second video, with the details:

Some people thought it was a great idea. Here’s an e-mail we received this week (slightly edited, to protect the identity of the sender):

Mr. Doug Hoyes, I heard your radio announcement this morning about budgeting. I read your budgeting report on your website, The Secret to Making a Budget: DON’T, and it all makes perfect sense! Thank you. My husband and I are both in our 50′s. Since I can no longer work due to medical issues, and we are still paying lawyers to deal with support issues, we thought it was the end for us. We did look into bankruptcy a few years ago, but we couldn’t do it. We have been keeping our heads above water for the last five years, but we were just looking into using quick books to help us with our spending.
I like your approach to not-budgeting, and maybe in conjunction with quick books, we can make things work out for us.
I just wanted to email you and say thank you.

Excellent! That’s exactly why I wrote the article, and recorded the videos: to show everyone simple methods to manage money.

Other people seem to think my approach is too easy. How can you just set up your bills to automatically get paid? My answer: try it; see if it works for you. If it doesn’t, you can use the conventional method of keeping a detailed budget on paper, or on-line, using a program like Calendar Budget. Need some help?

Here are some thoughts from Ted Michalos on budgeting for Christmas – his advice? Start now. As Wendy Young in our Hamilton office describes it, it’s time for a fresh start. Joel Sandwith also agrees that it’s time for a fresh start, and tracking spending is a good starting point, and then budgeting by making small changes is the next step. Benny Mendlowitz in our North York office agrees that budgeting often is a broken New Year’s resolution, so paying your bills when you get paid makes more sense. Scott Schaefer also offers his Top 6 Budget Tips. And for the person who asked, yes, in Toronto, or anywhere, there is an easier way to budget.

Jason Quinney in Barrie offers his 5 Tips to get your budget in control. Rebecca Martyn in Windsor asks the question How can I manage my money?, and she gives some straight-forward advice. Ross Stevenson in Vaughan (Woodbridge) talks about budgeting, and he tells an interesting story he overheard at the mall.

And yes, I’ve posted my thoughts in many places as well, including my comments on the Budgeting the Easy Way, and The Easy Way to Budget.

So why do some people get upset with the “B” word, budgeting? It’s not because they don’t want to budget, or don’t know how to budget. It’s because they have a lot of debt, so there is no way to make a budget that balances; there’s just too much going out each month.

If you can’t budget because you have too much debt, a consumer proposal might be the answer. Try our debt options calculator to see what might work for you, then let’s get started.

Doug Hoyes smiling, because he's NOT budgeting

One of the most common New Year’s resolutions is to make a budget and stick to it. This year, I have some advice for you:

Don’t bother.

Budgets are like diets: they are hard to do, and after a week, or a month, you give up, because it’s too difficult. Think about it: are you really going to carry a pencil and paper with you and write down every penny you spend? Will you write down each cup of coffee you buy at the coffee shop? Will you go home every night and punch the numbers into your computer, and then create graphs and spreadsheets to analyze everything?

Perhaps you will. But to successfully manage a budget you need to be very disciplined. You need to stick to it. If you are very disciplined, great. There are some great tools that you can use to help you make a successful budget. Calendar Budget is an on-line program that makes it simple to track your spending; they even offer a free trial. You can go to our personal budgeting page and download an Excel Spreadsheet Budget Planning Worksheet if you want to do it yourself.

But what if you are not highly disciplined? What if you don’t know how to work a spreadsheet, or if you don’t have time to record every penny you spend? I have a solution:

Instead of budgeting, pay your bills as often as you get paid.

That’s it. That’s the system. Here’s how it works:

If you get paid bi-weekly, pay your bills every two weeks, on payday. Here’s an example:

You get paid on January 13 and January 27, and your hydro bill is due on the 30th of every month. So this month your plan is to use $100 from your January 27 paycheque to pay your hydro bill. That makes sense, but your rent is due on February 1, and your car insurance is due on February 2, so you know your paycheque won’t last that long. Here’s a better plan:

Use internet banking to pre-program a $50 payment, every payday, to hydro. Do it now, for the next six months. Then, every payday, $50 gets automatically sent to hydro. If you send $50 on January 13 and $50 on January 27, by January 30 you hydro bill is paid. No worries.

Even better, in May you get three paycheques, on June 1, 15 and 29, so in June hydro will get three payments from you. By the end of June you will be $50 ahead with hydro.

Think about that: You will be ahead on your bills. Instead of always “playing catch up”, you can get ahead and stay ahead.

To find out more, read our special report on the Secret to Personal Budgeting. It’s easy. Don’t budget, just pay your bills as often as you get paid.

I don’t have a desire to be the bearer of bad news, but as we proceed into 2012, I have bad news: Canadians are carrying record levels of debt. Whose fault is it that we have so much debt? The bank’s fault for lending us too much, or our fault for borrowing it? I answered that question on the radio a few weeks ago with a six minute rant, which you can watch here, where I concluded that we are all to blame:

Back to our record levels of debt: The average Canadian owes $153 for every $100 they earn.

Think about that.

If you have a job where you take home $30,000 per year, and if you are the average Canadian, you owe about $46,000. In fact, according to Statistics Canada, household debt per person in Canada is $46,100, which is 1% higher than it was three months ago, and 5% higher than it was a year ago.

Think about that.

If you are average, you are carrying 5% more debt today than you were carrying a year ago.

Did your pay go up 5% this year? Probably not. According to Statistics Canada, average hourly wages were up 2.4% in the last year, but that’s just the average. If you work through a union your wages were only up 1.5%, and if you are a temporary worker your wages only increased by 1.0%.

Perhaps the news isn’t all bad? Perhaps we have more debt because we borrowed to invest, and our investments went up in value, so even with higher debt we are actually better off?

Nope.

Household net worth per person fell 2.5% in the last three months. That’s a big drop. Even worse, in 2010, when we released our study on Joe Debtor: The Profile of the Average Bankrupt, the average bankrupt owed 2.2 times his annual income in debt.  As of today, based on our own proprietary data, our debt is now 2.4 times our annual income.

Is there no good news? I suppose the fact that for the twelve months ended August 31, 2011 total personal insolvencies in Canada are down 9.7%, and personal bankruptcy filings are down 16.7%, is good news. However, the bankruptcy rate increased significantly in the past, peaking in 2009, so this year’s drop is just a drop to still very high levels. The unemployment rate in Canada has dropped since the peak in 2009, which is good news.

However, it’s no surprise that 2009 was both the peak in unemployment and bankruptcy filings in Canada, so those two statistics are related. The unemployment did rate did increase in November, so if that trend continues we could see higher bankruptcy rates in the future.

Here’s my point: We are carrying more debt than ever before, and debt is bad. If you want to know why, Ted Michalos and I discussed that on the radio as well (and this clip is under two minutes):

Debt reduces your cash flow each month, and if you are trying to pay interest on debt you don’t have money to save for your children’s education, or retirement, or anything else. If you have debt, your resolution for 2012 should be: get out of debt.

You can get out of debt by making a household budget and cutting expenses. If you have more debt than you can handle, credit counselling, a consumer proposal or even personal bankruptcy may be required. Try our debt options calculator to see which option may be right for you, but above all, make a plan and start today.

Debt problems do not go away on their own, so the sooner you start, the sooner you can be living debt free.

A married couple was in to see us this week.  They have about $45,000 in debt, and they had spoken to a debt settlement firm who had advised them that they would attempt to settle their debts for payments of $850 per month for 36 months, or just over $30,000.  They wanted a second opinion, so they brought in their contract with the debt settlement firm.  I reviewed the contract, and found many interesting clauses.  But before I review the contract, let me tell you the end of the story: they will be filing a consumer proposal, where they will pay $375 per month for 60 months, or $22,500.

Here are the clauses in the contract I found interesting:

First, the debt settlement company “does not make regularly scheduled payments on the Client’s behalf to creditors.”  Why not?  Because in a typical debt settlement plan you are required to accumulate a lump sum of money, which is then used for the settlement.  In this case it’s expected that it will take 36 months, or three years, for the client to accumulate enough money that the creditors are likely to accept the settlement.

This is in direct contrast to a consumer proposal, where we get the creditors written agreement at the start of the process, and then we make regularly scheduled distributions to the creditors.

You may be thinking to yourself, “wait a minute; if in a debt settlement it might be three years before the creditors see any money, isn’t it possible that they will sue me?”  Good question.  In fact, the contract addresses that as well.  Here’s a quote:

“Entering into a debt settlement program does not guarantee that you will not receive collection calls, letter, lawsuits or garnishments.”

Again, that is in direct contrast to a consumer proposal.  Upon the filing of a consumer proposal there is an automatic “stay of proceedings”, which means that lawsuits and garnishments from credit card companies and banks are required to stop while they consider the proposal.

Finally, here’s another clause from the debt settlement company contract:

“We determine your eligibility for a debt settlement program, but we do NOT evaluate your unique credit and debt situation to determine the best debt relief option for you.  It is your responsibility and choice to evaluate and determine which option is best for you.  It is important to be aware of other debt relief options which may include credit counselling, a consumer proposal, bankruptcy or working directly with your creditors.”

Wow.  At least they admit that they are not giving you any advice, and they won’t tell you about your other options.

And that’s true.  They didn’t tell this couple that instead of paying over $30,000 for a debt settlement plan that would not protect them from lawsuits or garnishments, and might not even work, they could instead file a consumer proposal for just over $20,000 and receive full legal protection.

So what’s the moral of the story? Know your options.  Investigate all of your options, and decide which option is best for you.  To find out more, watch this video where I explain your five basic debt management options:

November 14 to 18 is Credit Education Week in Canada, and I must admit I have mixed feelings. I strongly agree that Canadians need more education about credit, and debt, so anything we can do to help educate Canadians is good. However, I also wonder who should educate Canadians about credit.

Credit Education Week, according to their website, is sponsored by many financial institutions, including Capital One (the Platinum Sponsor), and three of the big banks (RBC, TD, and BMO). Other sponsors include OLG (who operates our lotteries and casinos; I’m not sure what they have to do with credit), a large payday loan company, Credit Canada, and three bankruptcy firms.

There are what appear to be many good conferences to be held during the week. According to their schedule, there will be a Money Management and Budgeting Workshop Monday to Thursday at the Family Counselling and Support Services for Guelph offices. We have referred hundreds of people over the years to Family Counselling in Guelph for credit counselling. They are a great organization, and I’m glad they are involved.

I must admit, however, that I do get a bit of queasy feeling when I see big banks and credit card companies sponsoring Credit Education Week. Don’t banks and credit card companies want us to borrow? Yes, of course they do, that’s how they make their money, but I guess they would tell us that they want us to borrow responsibly, and that’s why they sponsor Credit Education Week.

I think my queasiness is really caused by the use of the word “Credit”. I don’t like that word. Credit is a positive word, like “giving someone credit for a job well done.”

I prefer the word “debt”, because that’s really what we are talking about. I think we should call it what it is: “Debt Education Week”, but I assume the banks would not want to sponsor something that negative.

I also worry that the advice might be somewhat one-sided. If you call us here at Hoyes Michalos and ask us to explain your options, we will explain all of your debt management options. We’ll talk to you about budgeting to cut your expenses to pay off your debt on your own. We’ll talk about debt consolidation loans, credit counselling, debt settlement, consumer proposals and bankruptcy. Do the banks that sponsor Credit Education Week want you to know about consumer proposals and bankruptcy? I doubt it. They would be much happier if you paid in full, or if you did a debt management plan.

Of course we only make money from you if you file a consumer proposal or bankruptcy, so why do we explain all of your options? Two reasons:

First, we want you to find the right solution, even if we don’t make any money from it. We’ve been in business since 1999, and a big portion of our work comes from satisfied people we have helped, so we know that by explaining all options we will continue to grow.

Second, it’s the law. We are licensed by the federal government, and Directive No. 6R3 requires us to “discuss the options available to debtor for resolving financial difficulties”, including “non-legislative debt settlement arrangements” which includes debt consolidation, credit counselling, debt settlements, and budgeting.

So, when you meet with us, we tell you everything, as I explained on the radio a few weeks ago:

So what’s my point? Am I against Credit Education Week?

No, I support Credit Education Week. But to answer the question “who should educate Canadians about debt?” the answer is NOT the banks, or bankruptcy trustees, or credit counsellors, because we all have our own biases. Credit counsellors make their money from debt management plans. Bankruptcy trustees make their money from consumer proposals and bankruptcies, so those are the options we will emphasize.

The answer, I believe, is that the best person to educate you, is you.

Do your own research. Go to some of the Credit Education Week sessions, but also do your own research. Read many points of view.

For example, Gail Vaz-Oxlade, host of TV’s Till Debt Do Us Part, and Princess, believes that during Credit Education Week we should all stop using our credit cards. That’s an interesting idea, and probably not an idea you will hear at a bank-sponsored event. I don’t agree with everything Gail says, but I do love her “no-nonsense” style, so when you are doing your research stop by her blog post where she suggests we should school, which means teach lenders not to lend to people who can’t afford it.

In an interview on CBC she tells the story of a young man, earning $21,000 per year, who got $15,000 in credit from a big bank. You can watch the interview on CBC. The only solution for this person was to, you guessed it, file a consumer proposal.

You won’t see Gail Vaz-Oxlade speaking at Credit Education Week, delivering her message of personal responsibility, and looking out for yourself.

Too bad, because looking out for ourselves is the best answer.

So here’s my challenge to you: assume this week is Debt Education Week, and make it your personal goal to learn as much as you can about the ways to deal with debt. Learn how banks make money, and research the role played by credit card companies, debt consultants, credit counsellors, and bankruptcy trustees. Review your debt options, and then decide what option is best for you.

We all know the problem with debt consultants.  Some of them will charge you a big up front fee, and then do nothing.  They tell you they will contact your creditors to work out a plan, but they don’t.  I had a meeting today with a representative for a large bank and he told me quite simply that “we don’t make deals with debt consultants.”  Sadly, people still use them, which is why here at Hoyes Michalos we’ve heard many debt consultant horror stories.

So why are unlicensed, for profit debt consultants allowed to run radio and television ads promising to reduce your debt, when more than 99 times out of a hundred they can’t?  Why doesn’t the government stop them?

Great question.  I was asked that question recently, and here’s my answer:

In summary: I don’t know why the government doesn’t do anything.  If there is anyone from the government reading this and they can give me an answer, please do.  Call me at 310-PLAN and let me know.

For everyone else, do your research.  Read our real life debt consultant stories.  Before you part with your hard earned money, be sure you meet with your debt consultant in person.  Don’t just talk to them over the phone; meet with them face to face so you can get a full explanation of all of your options.

If they don’t explain all of your debt management options, you are not getting good advice.  It’s as simple as that.

Over the last few weeks I’ve heard an increasing number of debt consultant horror stories. It started with my article a few weeks ago about The Problem with Debt Consultants, and since then the number of horror stories appear to be increasing. We even discussed it on the radio:

Here are the problems: There are no formal qualifications to become a debt consultant, and they can’t offer any legal protection. Unfortunately they can spend a lot of money on advertising, and it sounds good: they promise to reduce your debt. Of course "promising" and "doing" are two different things.

Last week I met with a person who heard the ads for a debt consultant called Cambridge Life Solutions on the radio. It sounded like a good deal. All they had to do was fax them all of their credit card statements, and open a separate savings account, and send Cambridge Life Solutions a void cheque. The deal was simple: Cambridge Life Solutions would withdraw $800 per month from her new savings account, and they would deal with her debt.

It sounded good, but this person was suspicious when the Cambridge Life Solutions representative told them to "not talk to any of the creditors; ignore them." Apparently this was because the creditors would "tell her a bunch of lies."

After three months of paying $800 per month to Cambridge Life Solutions, the credit card companies started sending letters, so the person I met with finally decided to answer the phone when they called. Guess what? None of the creditors had heard a word from the debt consultant! They had charged $2,400, and had done nothing!

Sadly, I’m not surprised, because I know how this "game" works. They want to get their fee paid first, which is often many hundreds, or thousands, of dollars. Then they want you to start saving money in your new savings account. If you can survive the phone calls and letters for a year or two, they hope that you will have saved up enough money to allow them to make a deal with your creditors.

So, for example, if you have $50,000 in credit card debts and bank loans, and if you haven’t made any payments on them for 18 months, it’s possible that the creditors will be willing to accept a cash settlement of 20 cents on the dollar, or $10,000. Makes sense, but ask yourself these questions:

1. What are the chances that I can save up $10,000? I’m in financial trouble now, so saving money is very difficult.
2. Will I be able to handle the stress of constant phone calls and letters for 18 months? Will my family be able to handle the phone calls?
3. What will my employer think if I start getting phone calls at work?
4. What happens if the credit card company decides to take me to court and sue me and garnishee my wages?
5. What if the credit card company won’t accept the deal?

Those are very good questions, and they illustrate the problem with using a debt consultant. Unless you have access to a lump sum of cash, and you are not worried about legal action, paying a lot of money to a debt consultant is not the correct solution.

What is the correct solution? It depends on your situation. If you have $50,000 in debt, and you can afford to pay $800 per month, you might be able to simply keep making payments on your own. If you can afford to pay $400 per month, a consumer proposal might be the correct solution. Your situation is unique, so contact us and we’ll walk you through your options (and we won’t charge you an up front fee).

I started this post by saying I’ve heard an increasing number of stories about debt consultants. I’m not the only one; here are some stories and comments from the rest of the Hoyes Michalos team from the last two weeks:

• Wendy Young in Hamilton discusses whether or not debt consultants can really help;
• Ian Martin in Kitchener tells a Halloween Horror Story – Watch Your Money Vanish In to Debt Consultant’s Pocket. He also asks whether or not a debt consultant can provide legal protection from your creditors (and the answer is scary);
• Brian McIlmoyle in Mississauga asks Just What is a Debt Consultant? (and I like his answer: “But what exactly do they do? The simplest answer is “not much” other than separate you from your hard earned money.”
• Joel Sandwith in Sarnia also asked what is a debt consultant?, and his conclusions were similar to Brian’s;
• Susan Jung in St. Catharines was so incensed about debt consultants she told a three part story of "Tasha" in Debt Consultants Part 1, Debt Consultants Part 2 and Debt Consultants Part 3 (coming soon);
• Benny Mendlowitz in Toronto asks a very relevant question: Who offers real legal protection against garnishments? A consumer proposal administrator, bankruptcy trustee, or debt consultant? (I think you know the answer);
• Janette Martin in North York answers the question can a debt consultant protect you from your creditors? with a very simple answer: "no";
• Howard Hayes in Cambridge agrees, and he’s more blunt, when he says that debt consultants offer you no legal protection. On our Brantford site Howard talks about debt consultants and the scary side of debt.
• Jason Quinney offers the opinion that the problem with debt consultants in Barrie is that they can be misleading, and they charge huge fees;
• Rebecca Martyn in Windsor also objects to debt consultants charging huge fees, and not producing a legally binding settlement; she also thinks debt consultants are scary;
• Adam Rauf in Brampton thinks debt consultants are mostly smoke and mirrors, since they imply legal protection, but can’t offer it;
• Bill Kilner is Scarborough doesn’t think that debt consultants are the best option, and he explains why;
• Julie Wildman in Toronto addresses the issue of debt consultants and legal protection, but she takes it one step further and equates debt consultants to a Halloween fright!;
• Ross Stevenson in Vaughan has an interesting take on what debt consultants will not tell you.

So here’s my summary: before you hand over your hard earned cash to anyone, check them out. Ask to meet with them in person! You may not be a debt expert, but as a human being you have lots of experience deciding whether or not someone is trustworthy, so arrange a personal meeting, and then make your decision.

Since publishing my last post about The Problem with Debt Consultants I’ve been inundated with stories about debt consultants.

Before we start telling stories, what exactly is a debt consultant?  As Joel Sandwith explains it, a debt consultant is often someone who is suggesting a solution that is “too good to be true.”  In Rebecca Martyn‘s experience as a trustee, a debt consultant is often simply someone who charges a large up front fee, and then refers you to a trustee.  Danielle Ratford has even less respect for them: she calls debt consultants a wolf in sheep’s clothing.

Sadly, Joel, Rebecca and Danielle’s opinions are based in real life stories.

Ian Martin tells the story of Carl (not his real name), who talked on the phone for a while with a debt consultant, only to discover he was talking to someone in California!  Ian’s advice: “when it comes to debt consultants, know who you are getting into bed with.”

Susan Jung tells the story of “Tasha”, who met an apparently very kind and caring debt consultant, who promised to deal with her debts.  Unfortunately the plan was that Tasha would pay him $1,200, and then he would set up a meeting for her with the “Court Officer”.  I don’t want to steal Sue’s story, but here’s a hint: whenever anyone tries to impress you with a term like “Court Officer”, be suspicious.  If you file a consumer proposal or bankruptcy with Hoyes Michalos we are appointed by the Court to administer your file.  If a debt consultant tells you they are arranging a meeting with a “Court Officer”, they are really telling you that they are referring you to a trustee.  That’s fine, but don’t pay $1,200, or more, just to get referred to a trustee.

If you want to meet a trustee, contact Hoyes Michalos, and we’ll meet with you to discuss your options for free.

Benny Mendlowitz met with a woman in his Scarborough office who met a debt consultant who’s office is on the same floor as Benny’s office.  She said to the debt consultant “why would I pay you $500 to hook me up with a trustee when I can do that myself?” At that point, she got up and left, found Benny, and Benny filed her consumer proposal (and he didn’t charge her any up front fees).

So why do people go to debt consultants?  Because they advertise a lot, particularly in the Toronto area.  Julie Wildman in our Toronto office tells the story of the debt consultant ads “snaring” an unsuspecting couple who paid the debt consultant $1,000, and never heard from them again.  That’s sad, and that’s why I’m writing this article as a warning to others.  Ross Stevenson in Vaughan tells a similar story, and he advises that the truth about debt consultants is simple: they can’t offer legal protection from your creditors! Adam Rauf in Brampton is more aggressive, calling debt consultants a scam!

I won’t go so far as to say every debt consultant is a scam artist, but I will say this: if your wages are being garnisheed, there are only three ways to stop it:

1. get the creditor to stop the garnishment, which they will generally only do if you pay it off in full, plus interest and legal costs;
2. file a consumer proposal;
3. declare bankruptcy.

A debt consultant may be able to make a deal to stop a garnishment.  If they can, and it doesn’t cost you too much, great.  But a debt consultant is not licensed to file a proposal or a bankruptcy, so they can’t offer that form of legal protection.

All they can do is charge you a large up front fee, and then refer you to a licensed trustee.

So, for legal protection, bypass the middle man, and  don’t pay an up front fee.  Contact us, and arrange for your no charge initial consultation where we will explain all of your options.

Let’s get started.