Stand back – it may be time for a rant. Really. This topic tends to set me off and I will tell you why…
A consumer proposal is a legal procedure that allows Canadians to repay a portion of their debts, instead of filing an assignment in bankruptcy. By law, only a licensed trustee in bankruptcy may administer a consumer proposal.
Wait, that’s not technically true. The law allows the federal government to issue special licenses to administer consumer proposals, but no such special licenses have ever been issued. This means you have to deal with a trustee in bankruptcy in order to file a consumer proposal. There are no exceptions. No licensed trustee, no consumer proposal.
Yet you see many people advertising consumer proposals, or a similar type of 'government debt settlement program' all over the internet. Why is that?
They know it's a good product and that people struggling with debts would like to settle their debts for less than they owe but unless you are a trustee you can't offer this service. So the solution is to advertise that they can help you settle your debts, scare you into not talking directly to a trustee (after all they are a bankruptcy trustee) and offer to find you a solution. Of course for a fee.
Let's get back to bankruptcy trustees for a moment. Trustees are not allowed to charge consulting or “upfront” fees. Whatever fees you pay to a trustee must be disclosed and are paid out of the consumer proposal’s terms. Oh and these fees are legislated. Under the law, the trustee is entitled to a preparation fee of $1500, plus 20% of the funds disbursed to your creditors under the terms of the proposal, as well as some administrative charges and HST. All of the trustee’s fees are set out in the terms of the proposal and included in the total amount you are required to pay. Full disclosure when you sign the consumer proposal – that’s the law.
If you have been asked to make any payments before you sign the consumer proposal documents then you are being charged an “extra” (read not legally permitted by a trustee) fee. Of course, because the person you are paying is not a licensed trustee (or an employee of a licensed trustee) the law doesn’t apply. They can charge you whatever amount you are willing to pay and then refer you to a licensed trustee to file your consumer proposal!
There really is no reason to pay a referral fee (read fee to look at your situation and perhaps help you prepare the documents). Almost all bankruptcy trustees offer a free initial consultation to do just that. If you are not happy with the first one you see, book an appointment with another trustee. But my recommendation is to ask and make sure you are talking to a fully licensed trustee.
Why does this matter? Why does it set me off? Who cares?
The reason this matters is because the average person doesn’t know they need to be dealing with a licensed trustee. All they know is they’ve seen an ad that says “we can reduce your debts by 70%” or announcing that they are not bankruptcy trustees, like that is a good thing.
The average person doesn't know about a consumer proposal (although they are becoming more popular) or are afraid to call a bankruptcy trustee since, after all, they don't want to go bankrupt.
The reason this sets me off is the people that we deal with are in financial trouble. They are worried about paying the rent or mortgage, putting gas in the car, paying for this week’s groceries. The last thing they need is to pay a fee for a referral or to have incomplete advice.
Usually after a rant you feel better. Not in this case. It seems to be one of those things you just have to live with. At least anyone reading this post should know enough not to get caught themselves.