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| It is prudent to speak with a Licensed Insolvency Trustee (“LIT”) before paying a debt settlement company for what may be unnecessary services on their part. An LIT is federally regulated and can explain all your options, including a consumer proposal and bankruptcy. A debt settlement company is not regulated and cannot file a formal insolvency or provide the same legal protection that an LIT can. |
Why this choice matters
When you are under pressure from debt, a promise to reduce what you owe can sound appealing. Many debt settlement companies advertise large reductions of debt or rapid results. Some may help in limited situations, but others may charge unnecessary fees without solving the deeper problem. A debt settlement company is not regulated and cannot provide legal protection or file formal insolvency proceedings.
A Licensed Insolvency Trustee is different because they are federally regulated and authorized to discuss all options and administer legal proceedings such as consumer proposals and bankruptcies. Learn more about what a Licensed Insolvency Trustee does from the Office of the Superintendent of Bankruptcy.
What a debt settlement company may do
A debt settlement company may try to negotiate directly with creditors. They may ask you to save money in a separate account and then offer a lump-sum settlement to the creditors. This can sometimes work if there are a limited number of creditors, if creditors agree, the agreement is well documented, and you have enough money to pay the settlement quickly.
The challenge is that creditors do not have to participate in this type of informal workout. Interest may continue. Collection calls may continue. Legal action may continue. If you miss regular payments while saving for a settlement, your credit may be damaged further. Consumers should also review the Financial Consumer Agency of Canada debt help alert.
What a Licensed Insolvency Trustee can do
A Licensed Insolvency Trustee (“LIT”) can review your full financial situation and explain all your options. This may include informal repayment, consolidation, a debt management plan, credit counselling, a consumer proposal or bankruptcy.
If a consumer proposal is appropriate, the LIT files it with the Office of the Superintendent of Bankruptcy, which is the government agency that regulates the insolvency industry. Once filed, most unsecured creditors included in the proposal must stop collection action. This legal protection is a major difference. Official information is available on the Office of the Superintendent of Bankruptcy consumer proposals page and the page about creditors contacting you after filing a bankruptcy or proposal.
The key difference is legal authority
Debt settlement companies may negotiate with creditors, but they do not have the same legal authority as a Licensed Insolvency Trustee. They cannot administer a consumer proposal or bankruptcy on your behalf.
The Financial Consumer Agency of Canada warns that only a qualified Licensed Insolvency Trustee can help with a consumer proposal or bankruptcy.
When settlement may be risky
Debt settlement may be risky if you are told to stop paying creditors without understanding the consequences or if agreements are not well-documented. It may also be risky if a company charges upfront fees, guarantees results or does not explain all your options, including consumer proposals and bankruptcy.
Debt relief should never be based only on hope that creditors will agree later. You need to know what happens if they do not. Review the full range of debt relief options available.
When a trustee should be your first call
Speak to a Licensed Insolvency Trustee (“LIT”) first if you are burdened with debt, behind on payments, facing collection calls, dealing with wage garnishment, carrying tax debt, using payday loans, or unsure whether bankruptcy is your only option.
An LIT can discuss the options and help you compare the costs, timeline, credit impact and protection available under each option.
Questions to ask a debt settlement company
- Are you a Licensed Insolvency Trustee?
- Can you file a consumer proposal yourself?
- What fees do I pay before creditors agree?
- Will creditors stop interest and collection action?
- What happens if creditors refuse?
- Will you explain bankruptcy and consumer proposals too?
The main takeaway
A debt settlement company may only offer negotiations. A Licensed Insolvency Trustee can explain all options and, if needed, provide access to legal debt solutions. Before paying for debt settlement services, speak with a Licensed Insolvency Trustee so you know what options and protections are available.
Frequently asked questions
Can a trustee reduce my debt?
A trustee may help you file a consumer proposal that offers creditors less than the full amount owed, depending on your situation.
Are debt settlement companies illegal?
Not necessarily, but they do not have the same authority as Licensed Insolvency Trustees and should be reviewed carefully.
Who can stop wage garnishment?
A consumer proposal or bankruptcy filed through a Licensed Insolvency Trustee can stop many unsecured wage garnishments.
Speak with a Licensed Insolvency Trustee
Speak with David Sklar & Associates for a confidential review of your debt, assets, income, expenses and monthly budget. A Licensed Insolvency Trustee can explain your options and help you choose a realistic next step. Book a free consultation today.
