You have seen the ads that promise to “reduce your debt by up to 70% without filing bankruptcy.” The ads sound too good to be true, and they make you wonder who you are dealing with. How can someone running an ad in a newspaper make such a bold claim?
The procedure they are “selling” is often a consumer proposal and the claim of 70% debt reduction is often correct. Most people that file a consumer proposal repay about 30% of what they owe.
The second half of the claim, “without filing bankruptcy” is also true. A consumer proposal is a legal procedure administered by licensed trustees in bankruptcy who also serve as consumer proposal administrators, but it is not bankruptcy.
Where the people running these ads run into trouble (and that is not to suggest they are breaking the law because as far as I can tell they aren’t) is the fact that they charge you a fee for their services when all of the information they provide and the assistance that they give is available free of charge from trustees in bankruptcy.
Let me say that another way: the service these companies provide is to help you assemble the information necessary to file a consumer proposal. They can’t actually file a consumer proposal themselves, as only licensed consumer proposal administrators can do that. So once they have gathered up all of your information and you have paid them their fee, they refer you to a trustee to prepare and file the consumer proposal. What they don’t tell you is that if you had called a trustee directly there wouldn’t have been this extra fee – they would have provided the same service without the fee.
So who are you dealing with? Well, the companies running these ads call themselves debt consultants. There are no regulations for this industry as until some one thought up this “scam” a few years ago the industry didn’t exist. If there are no regulations then there is also no government oversight. If you decide to deal with one of these companies and something goes wrong, your only recourse is through the Courts. Given that you called them because you were in financial difficulty, what are the chances if something goes wrong you can afford to take them to Court? For most people the answer is slim or none.
So, if you are going to have to deal with a licensed trustee to file a consumer proposal, and the trustee won’t charge you an extra fee to help you assemble the information required to prepare a consumer proposal, why exactly would anyone ever deal with one of these companies?
The answer for some people is that they saw an ad, and responded to it, without asking any questions. For other people they use a debt consultant because they were afraid that a trustee would only talk to them about bankruptcy, and wouldn’t mention other alternatives, like a consumer proposal.
Don’t be fooled. Before you sign any agreement to help you deal with your debts, and before you hand over any of your hard earned (and in short supply) money, ask the person if the solution for you is to file a consumer proposal. If it is then ask them if they are a licensed trustee. If they are not then there really isn’t any point in dealing with them further.
Want to find out more? Call Hoyes, Michalos & Associates today. Get information from licensed professionals.