Avoiding The Debt Consultant Trap

Escaping the Pitfall of Debt Consultation Services

The financial landscape of Canada has seen a significant surge in the number of debt consultancy services. These entities purport to assist consumers in diminishing their debt, halting interest accumulation, and putting an end to collection calls. While these offerings sound appealing, they can often be misleading, or in some cases, downright deceptive. Avoiding The Debt Consultant Trap can be challenging, so it is important to understand how a Licensed Insolvency Trustee can help you.

In essence, many debt consultants charge you a fee and ultimately direct you to a Licensed Insolvency Trustee to finalize the process. This is a process you could have undertaken for free by approaching a Licensed Insolvency Trustee directly.

Recognizing debt consultants can be a challenging task. In this comprehensive guide, we will outline two primary methods to identify if you’re dealing with an unlicensed debt consultant:

  • Interrogating debt consultants with specific questions and analyzing their responses,
  • Understanding what to look for when evaluating their websites.

Methodology 1: Investigating Debt Consultants

Here are a few straightforward questions that you can pose to ascertain if an individual is a Licensed Insolvency Trustee. We’ve also provided the typical responses you’ll receive from a Trustee. If the answers deviate from these, it’s likely you’re dealing with an unlicensed debt professional.

Q 1. What certification do you possess to offer advice on consumer debt?

A Licensed Insolvency Trustee (LIT) will respond: I am/we are licensed by the Federal Government, specifically the Office of the Superintendent of Bankruptcy (OSB).

An unlicensed debt consultant’s probable response: We are accredited by X organization, we have excellent reviews, and have been in operation for X years.

Q 2. How can I independently confirm your licensing for this work?

A LIT’s response: You can visit the OSB’s website, where you can explore all active LITs in Canada.

An unlicensed debt consultant’s likely response: You can search for us online or on Google.

Q 3. How are your fees determined?

A LIT’s response: Our fees are regulated by the Federal Government and, for most cases, are based on a Tariff within the Bankruptcy And Insolvency Act General Rules sections 128 to 129.

An unlicensed debt consultant’s probable response: Our fee is determined based on your debt volume and the work required.

Q 4. Do I need to make any payments before officially filing?

A LIT’s response: No. Your initial payment is not due until you actually file.

An unlicensed debt consultant’s likely response: Yes, definitely. I need to be compensated, and we need to ensure you can afford the payments you want your proposal to be at.

Q 5. Do I have to swear an oath about the truthfulness and completeness of the information to be provided?

A LIT’s response: Yes, you need to swear an oath in front of a commissioner of oaths (usually the trustee themselves).

An unlicensed debt consultant’s likely response: You will be required to swear an oath in front of a government officer (sometimes referred to as a court officer).

Q 6. Can I omit any assets or debts?

A LIT’s response: No – you must disclose all assets and debts. This includes all of your secured and unsecured loans, lines of credit, payday loans, etc as well as all of your assets such as property, vehicles, cash, investments, etc.

An unlicensed debt consultant’s likely response: Certain debts and assets can be omitted.

Be wary of vague responses. LITs will generally offer almost identical answers due to the highly regulated nature of the insolvency process. On the contrary, consultants may provide varied responses to convince you of their service necessity.

Methodology 2: Evaluating Their Websites

Let’s begin by outlining what you should expect to see on a legitimately regulated firm’s website. Trustee advertising standards originate from Directive No. 33, which precisely defines what is required to advertise insolvency searches as a LIT firm.

The first requirement is our identification as a LIT firm. You can notice this at the top of this page, and every other page on our website.

LIT Designation

Most Trustees also include the LIT designation at the top of the page, but you may also find it in the main section of their website or in the footer.

Another requirement of advertising guidelines is that they must not be untrue, misleading, or deceptive in nature. This is where most consultants claiming to offer debt solutions fall short.

Example 1

Deceptive Calculator

We recently stumbled upon a website featuring a calculator. In this example, the calculator defaulted to a debt of $25,000. The calculator made some quite astounding claims. Let’s dissect the first two claims:

 

‘Reduce it to $12,000’ – While this sounds fantastic, it’s impossible to even estimate the potential debt reduction without conducting a comprehensive assessment. Further, even after a complete assessment, there remains some uncertainty. With consumer proposals, creditors get to vote on your offer. Even a bankruptcy has some uncertainty as your payments can fluctuate based on your income and assets you receive after you file and before you are discharged.

‘Your monthly payments
will
be $200 for 60 months’ – We wanted to highlight the ‘will’ in this sentence. Just like the previous claim made by this calculator, it’s impossible to even estimate what the payments will be for the same reasons mentioned above.

Due to the nature of the insolvency system, there are no guarantees, and companies who claim guarantees are simply being dishonest.

Example 2

Misleading Claims

You’ll notice a theme in that the claims made by unlicensed professionals are almost always incredibly certain, for example: You will have a payment of… You do qualify if…

However, the reality is far more complex. Whenever someone wishes to file a consumer proposal or bankruptcy, they must undergo a comprehensive financial assessment to understand their assets and liabilities, among other factors. This includes understanding the composition of unsecured debt and secured debt, what types of debt are owed (credit card debt, student loan debt, business debt, etc), and many more.

An individual does not simply qualify for ‘debt relief’ just because they are a Canadian Citizen and owe more than $5,000 in debt.

Example 3

Misleading Advertisement

This is an ad we have seen circulating the internet recently. We have removed any identifiable markings.

This one is better than the previous two examples we looked at. Nothing in the ad text itself is incorrect or misleading. One may mistake this ad to be legitimate.

However, as per the requirements imposed by the government on LITs, you can tell immediately that this is not a licensed and regulated trustee firm as nowhere in the ad does it identify itself as being a Licensed Insolvency Trustee.

Seeking help with your unsecured debts? LITs are the only debt professionals who are legally permitted to administer Consumer Proposals and Bankruptcies

Most debt consulting companies who claim to offer debt relief via ‘government debt relief programs’, usually refer files off to LITs for consumer proposals and bankruptcy. They merely charge a fee, gather information from consumers, and then direct them to a LIT for filing who has to redo the entire assessment process.

Save yourself the trouble, and most importantly money, by contacting a trustee directly.

The Dangers of Choosing a Debt Consultant Over a Licensed Insolvency Trustee

When an individual or business is grappling with debt, it can be challenging to know where to seek help. Over recent years, the popularity of so-called “debt consultants” has increased, as these individuals claim to be able to provide relief from financial troubles. However, it’s crucial to understand the risks associated with choosing a debt consultant over a licensed insolvency trustee.

Debt consultants (sometimes referred to as debt consolidation consultants) are not regulated by any government body that regulates legislated debt relief options (consumer proposals and bankruptcies), meaning they are not held to the same standards as Licensed Insolvency Trustees. As a result, they may lack the necessary knowledge or experience to provide effective assistance.

Additionally, debt consultants typically do not have any formal complaint mechanism, or if they list one on their website, it is managed entirely via internal processes. While this isn’t always a bad thing, LITs have oversight from two main bodies; the government (the Office of the Superintendent of Bankruptcy) and the Canadian Association of Insolvency and Restructuring Professionals, their professional organization.

For these reasons and more, it’s generally best to work directly with a licensed insolvency trustee when trying to resolve debt problems.

How to Locate a Trustworthy and Qualified Debt Professional in Canada

If you’re facing financial difficulties and are considering filing for insolvency, it’s important to choose a reliable and qualified Licensed Insolvency Trustee.

In Canada, there are several professional organizations that oversee the insolvency industry and protect consumers. The main organization is the Canadian Association of Insolvency and Restructuring Professionals (CAIRP).

This organization has strict standards for membership, and its members must adhere to a code of ethics and standards of professional conduct. CAIRP also provides a member directory on its website. We are proud members of CAIRP.

You can also ask friends, family, or your financial advisor for recommendations. Once you’ve found a few potential trustees, be sure to interview them to ensure they’re a good fit for your needs.

Bankruptcy Canada – Licensed Insolvency Trustee

  • We are experienced, hands-on insolvency practitioners who understand the personal impacts of significant financial stress.
  • You won’t be stuck in an assembly line process.
  • You can expect and receive prompt responses and resolution of issues from our supportive and experienced team.
  • We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.

We help Canadians with overwhelming debt get fresh financial starts.

Once you file a consumer proposal or personal bankruptcy, we deal directly with your creditors on your behalf. Your unsecured creditors are required to stop contacting you or continuing legal proceedings against you. Contact us for a free, no-obligation consultation.

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

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