Top 5 Signs Of A Debt Management Scam

Unveiling the Top 5 Indicators of a Debt Management Hoax

In this era of financial complexity, debt management companies are proliferating at an astonishing rate in Canada. They offer services like credit counselling, debt settlement, debt relief, and debt consolidation. Their enticing advertisements like “Slash your debts by 70% and dodge bankruptcy” sound promising. But is it factual? Yes, it’s possible. However, the key is understanding the underlying details and implications about how to settle your debt for less than the total amount you owe.

When hunting for a solution to your debt management predicaments, be on the lookout for the following red flags:

1. Claims of ‘Government Approval’

Some debt settlement agencies assert they are ‘government-approved’. This can be a ploy to instill a sense of security in the consumer but can often be a deceptive claim. There is no special government funding or licensing program for debt settlement companies. Nevertheless, government-licensed insolvency trustees like those at Bankruptcy Canada do exist and are the only professionals who can file a bankruptcy or Consumer Proposal on your behalf.

2. Assertions of Full Protection from Creditors

This claim is another smoke screen, as a debt settlement company can only negotiate a settlement on your behalf. While they are in the process of reaching a settlement, there is no assurance against a creditor from continuing to pursue you. This could even include taking you to court to garnishee your wages or seize assets. Note that only with a formal legal proceeding, like a Consumer Proposal or bankruptcy, can you guarantee full protection from all unsecured creditors.

3. Boasts of Successful Track Record

Many debt settlement firms will underscore that they have negotiated thousands of successful settlements for substantial amounts. While this might be true, these statistics usually omit the creditors who refuse to settle. Consider a scenario where you are a consumer with five outstanding unsecured credit debts and only two of them are settled by the firm. Would you label this outcome as successful? Remember, any creditors who refuse to settle remain your responsibility to deal with directly.

4. Promises of Credit Rating Protection

This is another misleading assertion, as any debt settlement that results in delayed regular monthly payments will affect your credit rating. A trustworthy advisor will explain all the options (budgeting, debt consolidation, credit counselling, Consumer Proposals, and bankruptcy) and how they will impact your credit rating. If the debt advisor doesn’t explain all the options, they are likely just selling you the service they offer.

5. Exorbitant Upfront Fees

Be sure to know where your money is going if you are asked to pay any fees upfront. Some debt settlement agencies charge you a fee to collect your information, then simply pass you onto a Licensed Trustee in Bankruptcy. They assert to represent your interests, while the Trustee represents the creditors. This is misleading, as the Trustee is an officer of the Court not only representing the creditor’s interests but also aiding in providing an honest but unfortunate debtor a fresh start.

To ward off getting entangled in a debt management scam, it’s up to you to do the necessary research and meet with someone reputable who can outline all your available options. Meeting with someone in person is crucial, as many debt settlement services will only communicate with you via phone or email. Why deal with a company that is not local? If you never get to meet with a real person, can you trust them?

Here are some key points to remember and questions to ask:

 

  • Are the counsellors certified?
  • What experience do they have?
  • Is the information provided free? If not, what is the fee?
  • Are there further payments before the plan gets accepted?
  • Do they offer services other than debt management?
  • Will they teach you budgeting or money management skills?
  • Does the plan include all my debts?
  • Will there be a formal written contract? Make sure to read the fine print.
  • Will they provide regular updates with the payments being made to the creditors?

 

Don’t be rushed. Conduct your research and make a knowledgeable decision based on all the facts. Seek advice from a Licensed Insolvency Trustee about Bankruptcy and Debt Relief, even if you don’t need to go bankrupt. They are the professionals that can discuss all your options with you for free to help you make an educated decision.

If you are interested in setting up a free, no-obligation consultation with one of Bankruptcy Canada’s licensed debt professionals, feel free to contact us today.

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