Debt Solutions
Money Advice USA
The debt industry can be scary and confusing when you’re genuinely in need and just want to be sure you’re getting the best advice.
There are several options available when you are in debt and many different providers trying to offer you those solutions – each claiming to be better and more official than the rest
In Canada, all of the so-called Debt Management companies fall in to one of three categories:
- Licensed Insolvency Trustees
- Debt Solutions Providers/ Debt Management Companies
- Credit Counselling Services
Let’s breakdown a few myths about who can do what, who gets paid by who and what services each can provide.
Licensed Insolvency Trustees (LIT or Trustee)
These are the ONLY people who can legally administer or “file? a Consumer Proposal or a Bankruptcy. Any of the other providers claiming to be able to do this are actually just packaging your case together and passing it to a Trustee. There’s nothing wrong with this but it is not always clear that this is the case.
Trustees are legally licensed and answer to the OSB (Office of the Superintendent of Bankruptcy), who are the official regulators of the industry.
Who pays Trustees?
Trustees are paid a fixed % of the value of the proposal they file with the courts. So, if you have $100k of debt, qualify for a Consumer Proposal and they are able to negotiate with your creditors and agree to say a $30k settlement, they will be paid 20% of that settlement over the timeline of that proposal (usually around 5 years on average). However, they are not allowed to charge any other fees and they will have reduced your debt by a huge amount so this is actually pretty good value for the service they provide.
There is one slight caveat in that Trustees usually claim to have to the best interests of the Debtor (you) at heart as they are not paid anything by creditors or anyone else. However, because they get paid a % of the final settlement, it could be argued that they are motivated to negotiate a larger settlement. That’s probably a bit cynical though since everyone has to agree what you can afford to pay back in terms of payments and regardless, they will have saved you a huge amount of money in both debt write offs and interest.
Trustees are typically not obliged to provide any other services like debt management plans or ongoing counselling – their focus is in the legal filing of your case
Debt Solutions Providers
These guys can easily come across as LITs if you believe what you read on their websites but there are in fact just credit counsellors who will refer your case to a LIT if they think you qualify for a Bankruptcy or Consumer Proposal.
However, unlike most LITs, they can provide a range of different solutions to help you get out of debt, which doesn’t always have to be a Bankruptcy or Consumer Proposal. They might be able to coach you through it via budgeting advice, debt management help, etc. Alternatively, they may be able to consolidate your debt in other ways like a debt consolidation loan.
The reputable ones also offer ongoing assistance to their clients once a solution is in place to try to avoid that person falling back in to debt again. This is not something you will typically get from a Trustee.
Who pays Debt Solutions providers?
These guys will usually charge a fee for their services (which is not regulated so be careful). They can also charge fees for signing you up to various debt management programs etc so you need to be mindful of all the ways you might be charged. If you end up filing for a Consumer Proposal, the LIT will also get paid in their usual way (see above), so you are in effect paying twice to have your case processed and it could end up costing you a lot more.
As ever though, there are more caveats here! Unlike LITs (who get paid a % of the final Proposal amount thus might not be that motivated to reduce your debt down too low), Debt Solutions providers should be looking to get your settlement as low as possible to make it as likely as possible that you will be able to pay it off and stay out of debt. Since their fee isn’t directly related to the value of the file it could be argued that they are more likely to negotiate a lower settlement on your behalf.
Last but not least, in case you weren’t confused enough already, there is the Credit Counselling Service.
Credit Counselling Service
These guys claim to be government backed, not for profit “charities? effectively who are there to help you out of the kindness of their hearts…. However, this is not exactly true, even if you can’t find anything on the internet to the contrary.
Yes, they are a “Not for Profit? but that doesn’t mean they don’t get paid – it just means at the end of each year the company can not declare a profit and there are lots of ways to make that happen whilst everyone still makes lots of money.
Furthermore, they get paid by your creditors in a “back end? deal. In fact, the CCS was set up by a consortium of the big creditors as a way of getting more back from potentially insolvent customers. As a result this can often be the most expensive solution, despite the charitable façade. Again, if your case was referred for a Consumer Proposal the Trustee would still get paid from the settlement amount. Debt Management Plans or settlement agreements can be the answer if you can afford to pay back your debts over a longer period and will likely have less impact on your credit score.
In summary, it is a bit of a minefield out there! However, the good news is that nationaldebtsupport.ca only works with reputable providers – be they Trustees or Debt Management Companies – so you can be sure you won’t be ripped off by some cowboy outfit. The choice of which route to go down is purely down to your specific circumstance and preference. Don’t forget though, you can speak to several providers for free (if anyone tries to charge you a fee for an initial consultation steer well clear) and see what solutions they recommend, then make an informed decision.