Debt consultants are getting more aggressive with their advertising. I am sure you have seen their advertisements on television late at night or in the newspapers. They promise to reduce your debt by up to 70%, without filing bankruptcy.
Generally they are trying to sell you on one of two things. The first is a consumer proposal and the second possibility is a debt settlement. Today I am going to talk about what happens when a debt consultant sells you on consumer proposal. Next week, I will discuss the later.
Imagine you are speaking with your neighbor about your desire to buy a television. You mention that you were at the local department store and saw the big screen television of your dreams and it was $1,000. Your neighbor then mentions that the same television was at the big box store for only $800. Your neighbor then says, “that will be 100 bucks for my advice”. You would assume he was joking and you certainly would not pay him, would you?
If you would not pay your neighbor, then I can’t see any reason to pay a debt consultant. It is true that people in a consumer proposal can repay a fraction of what they actually owe and often it is as low as 30%. So why then would I say it is not worth going to see a debt consultant?
The answer is simple; a debt consultant is not licensed to be an administrator of a consumer proposal. In Canada, only a trustee in bankruptcy can file a consumer proposal on your behalf. So what do these companies actually do?
They help you gather the information required to file a consumer proposal. For this guidance some debt consultants charge up to $1,500. After the information is gathered, they simply refer you to a trustee. The problem is, if you called the trustee first, they would have helped you gather the necessary documents for free.
Debt consultants who simply refer you to a trustee should be viewed with skepticism. Don’t get fooled by their catchy advertisements. They will have you believe that a trustee will only talk about bankruptcy, that simply is not true. In fact, a trustee has a legal responsibility to review your financial options. That is because they are licensed by the federal government. Debt consultants have no professional designation and they say they work for you, but the truth is they are just selling you something you can get for free.
If you are having financial difficulties, I recommend giving us a call, we do not charge up front fees and a consultation is free. You can reach our Vaughan office at 905-856-2930 or 310-PLAN (7526). You can also send us an email or fill out our online evaluation.