If it sounds too good to be true, it probably is!

Sunday, September 25, 2016 - 00:10

Bankruptcy, Collection Agencies


You may have seen the ads before, all with slightly different promises, such as:

“Credit card debt over $8,000? Qualify to reduce your debt by up to 60%”
“Canadian banks forced to forgive up to 75% of consumer credit card debt”
“New Canadian Debt Program allows Canada residents with over $10,000 in debt to eliminate 60% of their debt!”

Debt settlement is something that may work for some people. It is not as new or innovative as some of the ads suggest, but only recently did Debt Settlement companies become more common. With or without the assistance of a “middleman” like these Debt Settlement companies, it can usually lead to trouble.

Here is a typical scenario:

"You have been struggling with debts for some time, which started causing grief and marital stress. You see one of those Debt Settlement ads on Facebook and thought you would give it a shot. The Debt Settlement people said they could save you up to 70% of your debt and they appeared to be very thorough and professional in your initial dealings with them.  They promised to work for you and not for your creditors.

You desperately wanted to avoid bankruptcy and this seemed like a logical option to avoid that.

You signed some legal-looking documents including a Pre-Authorized Debit Agreement that would allow the Debt Settlement company to withdraw $500 per month from your bank account and put it into a special account under their control. As soon as there was ‘enough’ money in this special account, the Debt Settlement company would negotiate a settlement with your creditors. The Debt Settlement people said they would deal with your creditors and you wouldn’t have to worry about any more harassing phone calls. They even told you that, if a creditor calls, you should ‘update’ your phone number so that the creditor would only be phoning the Debt Settlement company."

Well, after a while things started to turn sour. The ‘thorough and professional’ assistance you witnessed at the beginning of the program was not maintained. You had made six payments of $500 to the Debt Settlement people, but your creditors were calling more than ever. Your phone calls and e-mails to the Debt Settlement company representative you initially dealt with have gone unanswered for weeks. You called the phone number that the Debt Settlement people suggested you provide to the creditors, but the voice mailbox was full! Then you receive a notice from one of your creditors saying they are planning on taking you to court!

Debt Settlement companies will offer to “negotiate” the settlement with your creditors on your behalf. But since most people don’t have the required money set aside for the lump sum settlement, the Debt Settlement company will “help” you by offering a “special” bank account in which you can deposit money until you have saved enough for the Debt Settlement company to negotiate with your creditors. It may be clear in the Agreement you are asked to sign – or it may be hidden in the “fine print” – but generally speaking, the Debt Settlement company will pay themselves a hefty service fee before they even make the Debt Settlement offer to your creditors.

In the meantime, as in the typical scenario referenced above, most creditors will not have the patience to wait for you to save up for a lump sum settlement. Practically speaking, the only way the Debt Settlement companies can have success stories is if the creditors involved are too lazy or “stunned” to take collection action before the lump sum settlement is proposed by the Debt Settlement company.

So be careful!

Nobody wants to file for bankruptcy, but for some people it is the only practical option.  The ads for the Debt Settlement companies play on people’s fear of bankruptcy and give them (often false) hope that they can avoid bankruptcy but still have the benefits of bankruptcy – such as being “allowed” to write-off a large portion of debt. My role is to make sure that people understand their options so that they can choose one that works best for their specific circumstances. There is no pressure in our FREE initial consultation with you. We want you to be educated on all possible solutions before you make your decision. In some cases, it’s glaringly obvious but in other situations, it may take a few days to make your decision. Either way, we are always here to help you along the way.