My mechanic, and I won't charge you $500 to find him
You’ve heard the ads on the radio and seen them in the newspaper. They promise to reduce your debt by up to 70% without filing bankruptcy. Can this be true? Read on.
The process they are describing is a Consumer Proposal. Yes, debts are reduced by 70%; the amount generally offered to creditors under a consumer proposal is 30% of the total debts owing. Yes, a consumer proposal is not bankruptcy. It is a legal process administered by a licensed trustee.
Ok, so what is wrong with this picture? Well, these debt consultants are not licensed to administer consumer proposals. They will REFER you to a licensed trustee who can administer your proposal, but they will CHARGE YOU A FEE for making that referral. Is there something wrong with this? Let me put it this way. The brakes on your car squeak. You know that they have to be replaced. You come to me and ask me what I think. I tell you to go see the mechanic around the corner. I charge you $500 for the referral. Get the picture? You could have gone directly to the mechanic, had your brakes fixed and saved $500. Oh, but you didn’t know the mechanic was around the corner? Well, look up mechanics on the internet, ask a friend for a referral or open the Yellow Pages. Either way, you saved yourself a lot of money. The fact that you paid any money for someone to tell you that you should be filing a consumer proposal is a complete waste of your money. A licensed trustee will give you this information for free.
Does this really happen? I am writing this article while sitting in my Scarborough office. In the office next door to me is a debt consultant. There are at least two more that I know of on this floor. They all refer their “clients” to the same trustee. Yes it happens. And the charge for this referral can be hundreds of dollars (I have heard up to $1,500). I met with a lady not too long ago who recanted this identical story to me. She said to the debt consultant “why would I pay you $500 to hook me up with a trustee when I can do that myself?” At that point, she got up and left, found me, and I filed her consumer proposal.
Debt consultants are not regulated; trustees are. So why do people use debt consultants. Well first of all, they probably don’t ask the right questions. But more importantly, they are likely afraid that a trustee will only explain a bankruptcy to them. This is farthest from the truth. I make sure I explain all options to a prospective client. And if a consumer proposal is possible, I recommend it 9 out of 10 times over a bankruptcy.
Want to find out more? Contact us at Hoyes Michalos. We are licensed to administer consumer proposals. And we won’t charge you an up front fee.