Can a Debt Consultant Protect you from your Creditors?

No.  A debt consultant cannot offer you legal protection from your creditors.  You are only protected legally from your creditors if you file a bankruptcy or proposal.  Bankruptcies and consumer proposals can only be filed through a licensed trustee, not a debt consultant.  Once you file a bankruptcy or proposal a “stay of proceedings” is immediately in place which stops your creditors from pursuing you for collection.

Over the years I have heard many horror stories from clients.  The one that irks me the most is about Margaret, an elderly lady with failing health.  Through a series of unfortunate events she and her husband managed to incur almost $200,000 in unsecured debt.  Margaret had been speaking to her lawyer who suggested that she call our office for some advice.  I met with Margaret one of our Toronto, Ontario offices and went over her options with her.

Near the end of our meeting Margaret advised that she would probably not need our services as she found a debt consultant that could help her.  She had spoken to a gentleman on the phone who told her she would pay about $700 a month for 12 months.  The consultant didn’t seem concerned that Margaret and her husband owned a house and a car and both had pension income.  I asked her what she would pay after 12 months.  She said that she believed that was all she had to pay.  I suggested that she call this person back and confirm this as it sounded too good to be true.  I could not see any way she could offer to pay $8,400 on $200,000 of debt and her creditors would ignore the $50,000 of equity in her home.

Several days later she faxed a 10 page document to me that she had been given by the debt consultant.  Now, I am not a lawyer and there was a lot of legal jargon in the document but the document did state that it was a membership agreement.  Their fee totaled about $7,500 plus GST, which they graciously agreed to accept in 12 monthly payments.  Once they had all her financial information they would work with her to prepare a plan and the necessary paperwork to gain the best agreement with her creditors. Unfortunately, this ‘deal’ doesn’t happen until after the full 12 months payments are made at which time Margaret would be referred to a Licensed Insolvency Trustee.

It didn’t take long for Margaret to decide that filing a consumer proposal directly with a Licensed Insolvency Trustee was a better option for her.  All of her creditors are being treated fairly and Margaret has one fixed monthly payment that she can afford.  This would not have happened had she fallen prey to the debt consultant.  More likely, because she was not legally protected, her creditors would have sued her and then put a lien on her home.

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