Debt settlement or consumer proposal Canada: Introduction
In this Brandon’s Blog on debt settlement or consumer proposal Canada, I want to tell you about a recent Government of Canada study. On April 28, 2017, the Office of the Superintendent of Bankruptcy (OSB), released its report of its investigation. The investigation began in May 2016, of Licensed Insolvency Trustee (LIT) business practices in administering consumer insolvencies. The report is titled: “Review of Licensed Insolvency Trustee business practices in relation to administration of consumer insolvencies”. The OSB was becoming increasingly concerned about debt settlement vs consumer proposal Canada and the influence debt settlement companies may have had over certain LITs. I must say that after reviewing the report, I found it shocking.
The purpose of the investigation arose out of concerns over the relationship between debt settlement companies and certain LITs. The OSB wished to decide if LITs were practising per the Bankruptcy and Insolvency Act (BIA), associated policies and OSB Directives. In 2016 they made up over half of all consumer insolvency cases filed.
The aim of the OSB’s evaluation was to recognize as well as analyze possible threats related to the honesty of some elements of the consumer bankruptcy procedure. Specifically in situations where LITs have become part of companies’ connections (or, other inappropriate business relationships) with fee-charging debt management companies.
Prior blogs
We have warned you for years about the dangers of using these types of companies, including:
- DEBT RELIEF PROGRAM VS BANKRUPTCY: ARE DEBT RELIEF COMPANIES SCARY?
- BEWARE OF DEBT SETTLEMENT COMPANIES – READ THIS BLOG TO FIND OUT WHY
- THE LATEST ON DEBT SETTLEMENT COMPANIES
- DEBT SETTLEMENT COMPANIES FINALLY TAKEN TO TASK IN ONTARIO
- HOW ADVANTAGES OF CONSUMER PROPOSALS SAVES YOU FROM DEBT SETTLEMENT COMPANIES
- #CONSUMER PROPOSALS VS. DEBT SETTLEMENT VIDEO#
- CONSUMER PROPOSAL VS DEBT SETTLEMENT
We, however, had no idea the harm caused to those most vulnerable consumers by a debt management company.
What relationships did the OSB investigation find?
The OSB report indicates that in 2016:
- 17 % (9,660) of all consumer proposal filings, the borrower reported having spent first for liability counselling advice from a debt settlement company before being guided to a LIT.
- 57 % (5,500 of 9,660) of the consumer proposal filings for which earlier settlement advice was obtained from LITs that had connections with 2 large-volume debt management companies. These 2 companies represented 64 % of the overall LIT fees reported in 2016 consumer insolvencies filings for debt settlement advice before filing an insolvency proceeding with a LIT.
- Thirteen LIT companies, which included one national-level company, were discovered to have several LITs running in a constant and continual partnership with large-volume liability management companies.
- For roughly 50 individual LITs within these 13 companies, greater than 40% of their consumer proposal filings were sourced from these settlement companies. For roughly 20 of those LITs, greater than 90% of their consumer proposal work comes from with these 2 companies.
Insolvent debtors sourced through these third parties
Insolvent debtors sourced via these settlement companies had the tendency to go after consumer proposals instead of bankruptcy. On the surface, this is a good thing. As you will read further and in next week’s vlog, you will see the reason was so that these companies could charge in many ways the unwary consumers more money than they should be paying.
The OSB’s investigation showed that the debt settlement companies wrote up the necessary documents. The LITs never met the debtors beforehand.
The OSB investigation determined that:
- Before the LIT meeting, consumer borrowers connected and had 2 to 4 conferences with the management companies.
- The LIT relied upon the settlement companies’ staff to do all the work relative to the gathering, evaluating as well as confirming the borrower’s information and reviewing and recommending on the bankruptcy alternatives.
- In situations where the LIT had a regular relationship with the settlement companies, all facets of the procedure before declaring were normally executed at the offices of the management companies.
- Information needed for the filing was typically sent straight from the settlement companies’ management team to the LIT’s management team, usually soon before the meeting at which the consumer proposal filing was to occur.
- Debtor conferences with the LIT (a variety of which included the settlement company) varied in the period from 5 to 30 minutes. In some circumstances, the meeting took place just after submitting the proposal with the OSB.
- LITs normally met the borrower to file at the settlement companies’ premises.
- Sometimes, the authorizing of legal papers likewise happened in many casual areas as well as cities where the LIT did not have an authorized workplace.
- Interaction with borrowers on legal obligations, creditor meetings, evaluations by an Official Receiver, proposal changes and voting by creditors, was practically solely performed by the settlement companies’ management staff, that communicate with the debtor.
- The debtors reported that succeeding interaction throughout the management of their consumer proposal was additionally with the debt settlement company as opposed to with the LIT.
It appears that these LITs who had these close relationships with the debt settlement companies may have shirked some of their responsibilities under the BIA. These LITs had to sign off confirming to the OSB that they had done the necessary work. By relying upon the work done by unlicensed debt settlement companies, did the LIT really do the work that they are signing off for?
Debt settlement or consumer proposal Canada: So what does this mean?
In next week’s vlog, we will go into detail about what the effect was of all this. For now, you should know that a summary of the results for the consumer included:
- Consumers paid thousands of dollars more than they needed to.
- Unscrupulous debt management companies (and their cooperating LIT firms) talked consumers into high rate loans under the guise of shortening the time they were under an insolvency administration and improving their credit score.
- The debt settlement companies had no certification or experience to give the type of insolvency guidance they were providing.
- Legal documents contained countless errors and false attestations.
- Creditors received less than they were otherwise entitled to.
- Debtors had no idea of either their responsibilities under the process they were undertaking. They were not given the opportunity to experience one of the most important aspects of the Canadian insolvency system, financial rehabilitation.
Debt settlement or consumer proposal Canada: What should you do if you have too much debt?
Consult a LIT first and don’t go to one of the debt settlement companies. There is no federal government approved debt settlement companies. The only government approved debt settlement program is a consumer proposal.
We are debt professionals who will evaluate your situation and recommend which debt relief options are right for you. A consumer proposal is one option; there are others as well.
Contact Ira Smith Trustee & Receiver Inc. today for a free consultation. There is no need for you to pay fees to a debt settlement company when you can get the same information from us for free.
You’ll be in good hands and Starting Over, Starting Now you can be well on your way to living a debt free life.
