Top 5 Signs Of A Debt Management Scam

2015-01-14   minute read

Michelle Scheller

Lifestyle Debt

Debt settlement companies have been growing quickly in Canada. They advertise credit counselling, debt settlement, debt relief, debt consolidation and debt management. What they offer sounds great. For example, a company may promote: “Reduce your debts by 70% and you won’t have to file bankruptcy.” Can this be true? Yes it can, but make sure you know the details and implications about how to settle your debt for less than the full amount that you owe.

In looking for a solution to your debt management problems, watch out for the following:


1.‘Government Approved’ Firms
Some debt settlement companies will advertise they are ‘government approved’. This may be a way to try and make the consumer feel comfortable, but it is ultimately misleading as there is no special government funding or licensing program for debt settlement companies. That being said, government licensed Trustees in Bankruptcy – like those at MNP Ltd. – do exist and are the sole professionals able to file a bankruptcy or Consumer Proposal on your behalf. 

2. Promises of Complete Protection from Creditors. 
Again, this type of claim is misleading, as a debt settlement company can only negotiate a settlement on your behalf. While attempting to reach a settlement, there is nothing to prevent a creditor from continuing to pursue you, including taking you to Court in order to garnishee your wages or seize assets. Note that only with a formal legal proceeding, like a Consumer Proposal or bankruptcy, will you be able to ensure full protection from all unsecured creditors.  

3. Successful Track Record Claims
Many debt settlement agencies will highlight that they have negotiated thousands of successful settlements for thousands of dollars. This may be the case, but the statistic doesn’t represent creditors that refuse to settle. To look at it another way, if you are a consumer with five outstanding unsecured credit debts and only two of them are settled by the firm, would you really call that outcome successful? Keep in mind that any creditors refusing to settle remain your responsibility to deal with directly.

4. Credit Rating Protection
This is yet another misleading claim, as any debt settlement where there is a delay in regular monthly payments will impact your credit rating. A reputable advisor will explain all the options (budgeting, debt consolidation, credit counselling, Consumer Proposals and bankruptcy) and how they will impact your credit rating. If the debt advisor doesn’t explain ALL of the options, they are likely just selling you the service they offer.
5. Large Upfront Fees
Make sure you know where your money is going if you are asked to pay any fees upfront. Some debt settlement agencies charge you a fee to collect your information, then simply refer you onto a Licensed Trustee in Bankruptcy. They claim to represent your interests, while the Trustee represents the creditors. This is misleading, as the Trustee is an officer of the Court not only representing the creditor’s interests, but aiding in providing an honest but unfortunate debtor a fresh start. The truth is if you need to find out what debt relief options are available, Trustees offer an initial free, no obligation consultation.   

In order to avoid being pulled into a debt management scam, it’s up to you to do your homework and meet with someone reputable that can outline all your available options. Meeting with someone in person is a critical piece of that homework, as many debt settlement services will only speak with you via phone or email. Why deal with a company that is not local? If you never get to meet with a real person, how can you trust them? Under no circumstances should you send money to someone you never meet.

Here are some things to keep in mind and questions to ask:

  • Are the counsellors certified?
  • What experience do they have?
  • Is the information provided free? If not, what is the fee?
  • Do I have further payments before the plan gets accepted?
  • Do they provide other services other than debt management?
  • Will you teach me any budgeting or money management skills?
  • Does the plan include all my debts?
  • Will there be a formal written contract? Ensure you read the fine print.
  • Will you provide regular updates with the payments that are being made to the creditors?

Don’t be pressured. Do your research and make an informed decision based on all the facts. Get advice from a Licensed Trustee in Bankruptcy, even if you don’t need to go bankrupt. They are the professionals that can discuss all of the options with you for free in order for you to make an educated decision.

If you are interested in setting up a free, no obligation consultation with one of MNP Ltd.’s licensed debt professionals, contact us today.

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