What are my rights?
If you’re considering options for getting out of debt, there are professionals who can help. There are also companies offering debt-relief services that are out to take advantage of your situation. Here are five tips to help you find professional assistance as you deal with debt problems.
Tip 1. Credit counsellors help people improve their finances
Credit counsellors help people manage their finances and reduce their debt. They can help you improve your financial habits and put together a plan to pay off your debts. They are trained in personal finance. Many work for non-profit credit counselling agencies, where their services are free or low cost.
A credit counsellor will review your income, assets, expenses and debts. They can help you make a budget to figure out how much money you can afford to put toward paying off your debts each month.
They also help you improve your financial skills, so you avoid getting into debt in the future. They can help you learn to better:
manage your money
make financial decisions
make a budget and stay within it
Find a non-profit credit counselling agency near you
Some organizations offering credit counselling services are for-profit businesses. Credit Counselling Canada is an association of non-profit credit counselling agencies in Canada. On their website, you can find a non-profit credit counselling agency near you.
Tip 2. “Debt repayment agents” must be licensed
Credit counsellors also help you take action on some of the ways to reduce debt. For example, they can help set up a debt repayment plan. This is a strategy to lump your monthly debt payments into one big payment. You pay a set monthly amount into an account at the credit counselling agency. The credit counsellor uses this amount to pay your creditors until your debts are paid.
To develop the debt repayment plan, the credit counsellor will contact your creditors on your behalf and propose a payment schedule based on your ability to pay.
Under the law in BC, anyone who represents you in negotiations with your creditors must be licensed as a “debt repayment agent." This includes credit counsellors. It also includes “debt settlement companies," explained below. Many of them, sadly, are not looking out for your best interests.
Check a debt repayment agent's licence
Check the Consumer Protection BC website to confirm that anyone you’re hiring to negotiate with your creditors is properly licensed as a “debt repayment agent."
Tip 3. The problem with debt settlement companies
Debt settlement companies are for-profit businesses that will negotiate with your creditors to offer them a sum of money to eliminate (or “settle”) your debts. The lump sum amount is less than your total debt.
Most debt settlement companies work like this: When you sign a contract with the company, they have you make monthly payments to them. The payments are put into an account. When there’s enough money in the account, the company will make their first settlement offers to some of your creditors.
But here’s the problem. While you’re making payments to the debt settlement company, your creditors get nothing. Some creditors may run out of patience and get a collection agency involved to recover their money. Make sure in advance that your creditors are willing to cooperate with the debt settlement company.
Learn more about how debt settlements work in our page on negotiating a debt settlement.
Research debt settlement companies
Before you sign with a debt settlement company, do some research. Find out about any unresolved complaints against it. Contact the Better Business Bureau in your area to ask about any complaints.
Tip 4. How to protect yourself from bad actors
“While struggling with my debt load, I came across a ‘debt counselor’ who claimed he could knock down my debt by 70%. And I wouldn’t have to declare bankruptcy. Or even lose my credit rating! But something smelled fishy. He’s not a lIcensed insolvency trustee, though he says he works with licensed trustees and can refer me if necessary. What’s got me spooked are the up-front fees — not to a licensed trustee, but to him, to build a “settlement account” he can then take to my creditors. No timeline was given for this.”
– Samantha, Hope
There’s more to watch out for when seeking help with debt problems. Some companies that offer debt-relief services are trying to scam you.
Some companies blatantly mislead, saying they “guarantee” they can solve your debt problems by swinging a deal with your creditors so you’ll only have to pay back a fraction of your debt. Such a guarantee isn’t possible. Some creditors refuse to negotiate; others may turn down the settlement proposal. Yet you may still need to pay the debt settlement company their fee. You could end up in even more debt than you were in before.
Some companies may encourage you to take out a high-interest loan to pay off your debts until they can “negotiate a better deal with your creditors." Be aware that some companies make money from fees, set-up costs and interest. You may still be carrying debt after the process is over.
Some companies claim they can quickly and easily fix or “repair” your credit score. It’s impossible to change or erase information that’s part of your credit history, unless information is inaccurate or dated. Improving your credit score takes time. (Learn how to improve your credit score with good habits.)
Watch out for debt-relief companies that do any of the following:
use high-pressure sales tactics
make unrealistic promises
charge excessive fees
delay payments to creditors
Tip 5. Licensed insolvency trustees help with formal legal processes
A licensed insolvency trustee provides advice to people and businesses about getting out of debt. Trustees are professionals regulated by the government office that oversees bankruptcies.
A trustee can help you decide on a strategy to get out of debt. Depending on your financial situation, they may suggest selling some of your assets, consolidating your debts, making a proposal to your creditors, or declaring bankruptcy.
Usually, the first meeting with a licensed insolvency trustee is free. If you go to the next step and have them make a consumer proposal or declare bankruptcy, you’ll need to pay them. The fees trustees can charge are regulated by the federal government.
To find a licensed insolvency trustee in your area, search this database. When you meet with a trustee, make sure to bring as much information about your finances as possible. For example, bring any credit card statements, loan documents, or mortgage records.
Only a licensed insolvency trustee can file a consumer proposal
Watch out for companies offering to file a consumer proposal for you. Only a licensed insolvency trustee can file a consumer proposal. Some companies charge hundreds of dollars in fees, and then refer you to a trustee. Never pay anyone for consumer proposal services other than a licensed trustee.