September 5, 2017

Some so called Debt Consultants sell “get out of debt programmes” based on the Section 4 of the Limitations Act – but consumers beware!  Here’s how the scheme works:

  1. You pay the debt consulting company a “membership fee” of $1,200 in consideration for which they advise the following:
    • As a member they will help you deal with collection calls – you should advise collectors that they are acting as you agent in negotiating some form of settlement.
    • After two years of not making payments your debts will be “FORGIVEN” by law.
    • Should any creditors actually sue you they will represent you in Small Claims Court.
    • You should immediately stop making payments to your creditors.
    • This is a better alternative than either a bankruptcy or a proposal
  2. You cease to make payments to your creditors and your credit rating slides to an R-9 which will show on credit reports for 6 years after the last time it is reported.
  3. Your accounts eventually end up in third party collections – third party collectors are more likely to negotiate terms than the original creditor.
    • The collection agency will continue to report the account as R-9 until the debt is satisfied either in full or in accordance with the new terms agreed.
  4. Most accounts will continue to pursue you directly -especially if not getting any satisfaction from your Debt Consultant.
  5. Some accounts may sue you in small claims court then you will find that:
    • The Debt Consultant probably wants a fee to attend Small Claims Court.
    • The Debt Consultant is unable to mount a viable defense because you do actually owe the debt
    • The Small Claims Court judge will award judgement against you, in favour of your. creditor(s), including their costs, accrued interest and post judgement interest.
    • The creditor may also obtain a garnishee order to seize accounts and wages.
    • Your Debt Consultant doesn’t return your phone calls anymore.
  6. So what about this debt “forgiveness”?
    • Under the Limitations Act after a period of two years if your creditors have not commenced a legal action they may not, except under exceptional circumstances, then start one.
    • The debt becomes “Statute Barred” which means that the creditors if they have not already sued cannot resort to any legal remedy to collect the debt.
    • It does not mean that the debt is no longer owed.
    • It does not mean that the creditor cannot attempt to collect the money you owe.

Sadly there are far too many unregulated so called Debt Consultants around preying on the public fear of the stigma of bankruptcy.  Many people are afraid to deal with a trustee in bankruptcy because they have heard urban myths about the process.   The fact remains that a trustee in bankruptcy is the most educated and best positioned professional to help you when you are faced with debt problems.

Before you go through an unnecessary expense of dealing with a Debt Consultant meet with a trustee and explore all of your options – you may surprisingly glad you did.  Most trustees will meet with you at no charge and you can always meet with another to elicit a second opinion or to answer further questions.