I’ve met with several people who have enrolled in programs or entered into contracts with unlicensed debt consultants. These ‘consultants’ said they would help them through a debt relief or debt settlement program. I won’t name the companies, because sadly there are too many out there to name.
They approached these companies because they didn’t want to file for bankruptcy. They assumed talking with a trustee meant filing bankruptcy.
This meant that they were vulnerable to these debt consultants.
Ultimately they were attracted by one of those ads we all see: “Avoid Bankruptcy, we can reduce your debts up to 70%” and “We work for you not your creditors”.
Most of these people had been enrolled several months before something happened to show the program wasn’t working, prompting them to see me. That event was legal action by their creditors resulting in wage garnishment.
In each case, the people who came in to see me were:
- Making substantial monthly payments to the debt consultant.
- Thought that the debt consultant would be in contact with their creditors. The contracts even had crazy clauses giving them permission to contact people on behalf of the debtor.
- Believed they were protected from further creditor actions.
- Thought they dealing with an accredited debt expert.
You can imagine how surprised they were to find out that the company that they had trusted to take care of their debt problems had never even contacted a single one of their creditors.
The debt consultant had done no “negotiations” at all, in fact all they had done was charge someone already struggling with debt payments several thousand dollars while ‘working on their paperwork and their proposal’.
They were further astounded to find out upon calling their creditors that most creditors refuse to deal with debt settlement companies at all, and there was in fact no change of any negotiated settlement from the very start.
Some were dismayed to find out that, after making months worth of payments, they were brought in to see a Licensed Insolvency Trustee whom they could have seen for free from the very beginning.
Beware the Fine Print
One of the clients I met brought the agreement they had signed along with them and we took a few minutes to go through it. Some of the terms and conditions the client agreed seemed “odd” when they signed it, but the representative assured them that it was all “standard terms” and they should not worry about it, they were going to “take care of them”.
Here are some of the terms that seemed odd. Upon signing the debt settlement company “shall have earned it’s fees in total” which means that on the day you sign the agreement you owe the company all of the fees it will charge for the duration of the agreement. So effectively signing the agreement puts you in debt by several thousand dollars on day 1! That seems kind of odd for a company that is supposed to be helping you to get out of debt.
In addition the contract specified ” the use of debt settlement service may not stop a creditor from filing or pursuing a lawsuit against an individual” also “debt settlers cannot force negotiations or settlements” In addition “the client understands that per this agreement the debt Settlement company will not distribute any funds to any creditors and that it is sole responsibility of the client to satisfy all negotiated settlements”.
Another client brought in an agreement that gave the debt consultant permission to contact a ridiculous array of people whom they had dealings with including their employer, former employer, landlord, school, CRA and many more.
So let me get this straight. The debt settlement company makes no representation that it can negotiate any settlement, it won’t distribute any money to the creditors and it acknowledges that you will very likely get sued anyway, but as soon as you sign the agreement you owe the debt settler all their fees even if they do nothing ( which, by the way, is exactly what they do in most cases, take your money, contact no one, do nothing and then walk away from you when you get sued). Sounds like a good deal FOR THEM.
Often in their pitch to prospective clients these debt settlement companies will make a point of saying “they don’t work for the Creditors”. However based on the terms of their standard agreements (and they are standard, I’ve seen several for different companies and they all have variations of the terms outlined above) they are not doing much for their clients either, clearly they work for themselves, serving their interests alone.
Skepticism Good When Dealing with Debt Consultants
I also received a call from someone I will call Frank (not his real name).
Frank did an internet search to see what his debt options are. He told me he has around $35,000 in credit card debt.
He first called a company and found out he was speaking with someone in another province, who despite their advertisement leading him to believe otherwise, does not have a local office. Frank was told to just stop paying his bills and was sent a contract which stated that he must enter into an agreement which required monthly fees of $865 for 10 months for the services provided by the debt consultant. During this time the debt consultant would assess his situation, gather information from Frank about his debts and help him develop a proposal to his creditors. Frank didn’t really understand how this was going to help him, so he thanked them for their time and continued his search.
The next company he called did have a local office. He was told they have exclusive access to government money. If he signs up with them, he can access this government money and settle his debts for 10 – 20 cents on the dollars. Rightfully so, Frank thought that was very strange. If there was such a government program then why has he never heard of it before and why do they only allow this company to access the money? And again, why did he need to sign a contract before understanding what proposal or agreement he would be making with his creditors?
His third call was to me. I was happy when Frank told me he didn’t sign any contracts or give anyone money or access to his bank account. I emailed him a link to a government warning about debt consultants. We discussed his options, including what is likely the best option for him, a consumer proposal.
Guidelines When Seeking Debt Help
If you are seeking the help of a debt professional, here are some important facts you should know:
- Only a Licensed Insolvency Trustee can administer a consumer proposal. Although we are licensed by the government, we are not government officials.
- Licensed Insolvency Trustees don’t only offer advice on bankruptcy and proposals. We are required by law to review all your options.
- You are allowed to ask questions when you are signing your consumer proposal paperwork. In fact, we encourage it if there is something you don’t understand.
- You don’t need to pay a referral fee to meet with a licensed insolvency trustee.
When you have debt problems, you need real help and real protection, not contract bafflegab and false promises. You need a Licensed Insolvency Trustee.
As a licensed trustee I have a government mandated duty of care to you, the person in need of debt relief, and to your creditors to see that everyone is treated fairly and according to the law. I’m not working “for” anyone, I serve the law alone which ensures that everyone gets fair treatment. Also you won’t pay me a single penny until we proceed with the solution to your debt that you decide is best for you. That means filing your proposal with the government and getting you protection from your creditors.
If you have debt problems, If you need to know your options without getting a “hard sell” or wasting money on unnnecesary consultation fees, talk to an accredited Licensed Insolvency Trustee about a consumer proposal, a safer way to settle your debts.