Debt consultants advertise that they can settle your debts for a fraction of what you owe, all while promising to stop collection calls and wage garnishments. What they don’t say is that they are advertising the exact same service that only a Licensed Insolvency Trustee can administer: a consumer proposal.
A consumer proposal is a legal arrangement between you and your creditors where you agree to repay a portion of your debt. Although, the amount offered to your creditors must be higher than what they would receive if you filed bankruptcy, it is still significantly less than what you owe. Moreover, a consumer proposal offers you immediate legal protection from your creditors. Once they have accepted your proposal, your creditors cannot sue you or garnish your wages, and they must end collection calls. With its ability to reduce debt and offer legal protection, it is easy to see why debt consultants want to advertise that they offer consumer proposals.
Yet, here’s the rub: they are not licensed to administer them. Consumer proposals, much like bankruptcies, are legal proceedings governed by the Bankruptcy and Insolvency Act (BIA) – only consumer proposal administrators and licensed insolvency trustees can file a consumer proposal. At best, debt consultants can complete the initial paperwork and then refer you to a trustee, which they’ll happily do — for a fee.
Debt Consultants will say “we work for you”
Often in their sales pitch, debt consultants will say that they work for you and that they have your best interests at heart. More troubling, they’ll suggest that a trustee works for the creditors. In truth, the trustee works for no one and everyone – they are mandated by the government to be fair to all parties involved. The proposal offered to creditors must be mutually beneficial for the creditors and the debtor. That’s why the amount offered has to be more than what the creditors would receive in a bankruptcy while keeping the payments manageable for the debtor. It would be unethical for a trustee to make a debtor pay more, just to recover more for the creditors. In fact, it is in the trustee’s best interest that you complete your proposal successfully as their professional reputation depends on it. Yet, debt consultants will say that they work for you in an attempt to convince you to meet with them instead of a trustee.
In contrast to a licensed insolvency trustee, debt consultants will charge you an exorbitant fee to complete the necessary paperwork for the proposal. They may also promise you will only have to pay a certain amount for your monthly payments (which is not possible as they have not met with the creditors), and ask you to sign a contract agreeing to pay them to represent you in your consumer proposal. Yet, all the services that debt consultants charge for, are offered by trustees for free.
Truth be told, debt consultants cannot file your consumer proposal without the help of a licensed insolvency trustee. They have to refer you to complete the proposal. They may be open about referring you to a trustee, or they may invite you to meet with an ‘Officer of the Court’ – which is just another way of saying they are referring you to a licensed insolvency trustee.
In the proper consumer proposal process, your initial consultation is always free. In your first meeting, you will meet with the licensed insolvency trustee or consumer proposal administrator. They will work with you, explain your options, and fill out the necessary paperwork. You do not have to pay until your proposal has been filed with the government and your creditor protection begins. Moreover, the trustee and the cost of the proposal are included in your monthly fee – so in essence, your creditors are paying for your proposal. Trustees do not charge a fee upfront. Lastly, only the trustee or consumer proposal administrator can file a stay of proceedings, which is what offers you legal protection from your creditors, which is part of your consumer proposal.
If you are meeting with a debt consultant, ask them what services they provide and how they provide those services. If they mention that they will fill out the paperwork before referring you to a trustee – thank them for their time and meet directly with a trustee. Do not feel pressured to sign a contract or to pay upfront. Do not hesitate to ask questions if you have any concerns. If something doesn’t seem right, or you feel like you are talking with a salesperson – get a second opinion from a licensed insolvency trustee. It’s free.