Trusting a trustee
Many people have concerns about trusting a trustee and sometimes with very good reason. There are a lot of sharks in the debt pool from cagey bankers to sketchy credit counsellors. Trustees fit into the spectrum in different places depending on many factors.
Some trustee firms, such as ours, refuse to work with debt referral services (credit/debt counsellors) while others may even set up subsidiary companies, perhaps run by their spouse or another family member with the express intent of exploiting debtors and increasing traffic to their firms.
In one instance a debtor collapsed an exempt RRSP to pay the debt counsellor’s fees of $6,200. After the debt counsellor was paid the debtor was referred to a (debt counsellor) friendly trustee then paid the trustee an additional fee of $1,800 for the bankruptcy. Had the debtor skipped the middleman and gone straight to the trustee they would have kept the $6,200 RRSP, which was exempt from seizure, and only incurred the basic $1,800 fee for the trustee.
Some trustees pay direct fees in disguise as “consultation fees” or for “presentations to staff”. I have been told that at least one not-for-profit credit counselling agency rented a parking space to a trustee firm for an exorbitant monthly rate in exchange for referrals. It’s not just the for-profit debt counsellors who are up to dirty tricks. Shame on the trustees who participate is such sketchy practices and disparage the profession.
It is important to be mindful that all not-for-profit credit counselling agencies are licensed collection agencies, they get paid by creditors (including the Canadian Bankers Association members) through a structured commission structure. The not-for-profit agency then issues the banks with a “charitable donation receipt” to help reduce their tax exposure. For-profits need to find other creative ways to get paid from adjunctive sales of mortgages and insurance to direct client or trustee referral fees.
Trustees fees are set by tariff by the Office of the Superintendent of Bankruptcy. The fees are generally better for a proposal than for a bankruptcy which is one reason why some trustees tend to push proposals. Proposals also require less monitoring and allow the trustee to draw its fees whenever it desires. There are several advantages and incentives to trustees to push proposals even when they are not the most appropriate solutions – they are certainly easier to sell.
Bankruptcy tariffs are generally not as generous as proposal tariffs and bankruptcies require more work by the trustee. Besides if a person doesn’t live up to their obligations under a proposal they can always file a bankruptcy, in which case the trustee may collect a fee from the proposal, even though it failed, and then collect a further fee from the bankruptcy.
The Superintendent’s office releases monthly statistics that show the numbers of bankruptcy and proposal filings nationwide and by province, but they don’t show the number of completed proposals versus failed proposals. So, the statistics may be skewed by including the number of proposals filed in one month that fail in subsequent months and then become bankruptcies.
As a sales tactic, when asked about fees, some trustees will only disclose the fee part of the tariff and not all the disbursements. Some lawyers do the same thing, telling you that they can close your house deal for fees of only $400, then you are surprised when you find their total bill, including disbursements, is $1,100. By obfuscating the whole cost of the administration, they do two things 1, they encourage you to attend at their office and 2, they cloud the reputation of the trustee community generally.
Let me leave this blog where it started can you trust a trustee? The right answer is yes you can but do your homework, don’t pay fees to anyone else for help. Ask around about the firm’s reputation, meet with more than one trustee, ask the same questions. Remember all trustees are governed by the same rules and regulations in the administration of your file.
Some trustees get into grey areas for advertising and marketing and those ones should be avoided if discovered. The Superintendent has limited powers to regulate businesses that are not directly run by trustees. Trust the trustee but avoid other services like a plague. Also be aware that the “government program” scam is still alive and well – the only government programs for getting you out of debt or consolidating your debts are bankruptcies and proposals and only Licensed Insolvency Trustees can provide those services.