Do You Need to Hire a Debt Consultant?

WHO CAN HELP YOU FILE A CONSUMER PROPOSAL?

According to the legislation, only a Licensed Insolvency Trustee (LIT) is permitted to administer a Consumer Proposal. While an individual can talk directly to a Licensed Insolvency Trustee and work with them to make a proposal to creditors, a LIT often isn’t the first person people reach out to when they have a debt problem that could be solved by a Consumer Proposal. Some reach out to a trusted friend or advisor or a not-for-profit credit counsellor, who end up referring them to a LIT at no cost. Others meet with a for-profit debt consultant (sometimes called a debt restructuring agent or a credit consultant) and engage them to help them deal with their debt. Having determined that the individual needs to file a Consumer Proposal, these debt consultants refer them to a LIT after charging the individual a fee.

WHAT DOES THE DEBT CONSULTANT FEE COVER?

Those who engage a debt consultant should understand what they are paying for. The fee paid to the debt consultant is totally separate from the payments you will make to the LIT for your Consumer Proposal. Consumer Proposal payments made to the LIT are deposited into a trust account for the benefit of your creditors. When the LIT makes a payment to your creditors from this trust account, it will take a portion of the funds as its fee, based on a specific calculation controlled by the government (which means any LIT would get the same fee for administering the same proposal). To be clear, you do not make a separate payment for the LIT’s services – it comes from the money your creditors agreed to settle for.

The funds you pay to the debt consultant go directly to the debt consultant only – none of it goes to the LIT or your creditors. This is the fee for the services the debt consultant provides. Keep in mind, that the debt consultant does not prepare, file or administer your Consumer Proposal, nor do they deal with your creditors – only an LIT can do this.

So what services does a debt consultant's fee cover?

Aside from referring you to an LIT, typically a debt consultant will provide some or all of the following: advice on your options, recommendations in regard to proposal terms, financial education and/or counselling, and information about rebuilding your credit. Some will also loan you money (with interest) or connect you with someone who will.

Are the services you pay a debt consultant for necessary?

With the exception of lending you money, the LIT is capable of providing all of the services we’ve just mentioned – for no extra fee.

• LITs are very well-versed in the options for dealing with debt (not just Consumer Proposal and bankruptcy options) and routinely provide free consultations to give advice on those options.
• LITs are very experienced in developing the terms of a proposal that is both achievable for you and likely to be accepted by your creditors.
• As part of their duties in administering your Consumer Proposal, LITs provide two financial counselling sessions to discuss financial topics like budgeting, setting financial goals, and building good credit, and they are often available to answer any other questions you may have.

WILL THE LIT HAVE YOUR BEST INTERESTS IN MIND?

Despite what you may have heard, LITs do not work for your creditors, nor do they work for the government. A LIT is an independent officer of the court. Although LITs are subject to government (and sometimes Court) oversight, when preparing a Consumer Proposal a LIT does not answer to any particular person, group, or entity. Their role is to act as an un-biased facilitator.

When you approach a LIT to discuss filing a Consumer Proposal, they will make recommendations based on what is best for you, considering your financial and family circumstances. That includes thinking about how your creditors will view the proposal because the goal is to file a proposal that will be accepted by a majority of your creditors.

Is the LIT your advocate?

As mentioned, a LIT will work with you to prepare a viable proposal, one which they can recommend your creditors accept. Regardless of whether you have engaged a debt consultant to advocate for you, a LIT will not recommend a proposal to your creditors unless it is a) better than what your creditors would get if you filed a bankruptcy and b) has a reasonable chance of success – ie. it is possible for you to meet your end of the bargain. Once a viable proposal is made, the Trustee will send a report to your creditors which will contain their recommendation. They’ll also be the point of contact for answering any questions your creditors have, and, if it appears the creditors will not accept the terms, they will work with you to adjust it.

An LIT is not a lawyer, so there is no solicitor/client confidentiality. They are an unbiased facilitator, so they will have to be honest with your creditors and disclose pertinent information. They must stick to the facts if there is a dispute between you and a creditor over some aspect of the proposal.

So while the LIT will be working hard to help you succeed (and most LITs have chosen this career path specifically because they want to help people) it would not be accurate to describe them as your advocate. Some people like the idea of engaging a debt consultant to play this role. If that’s something you are willing to pay a significant fee for, that’s up to you, as long as you are aware that you don’t NEED to hire a debt consultant to file a fair and achievable proposal. You can get great service directly from an LIT.

FREQUENTLY ASKED QUESTIONS

Q. I'd like to know more about what a Licensed Insolvency Trustee is.
Check out this blog post, where we explain who LITs are and what they do.

Q. How do I know if the company or person I'm considering reaching out to is a Licensed Insolvency Trustee?
It can be hard to identify a debt consultant when you're viewing their advertising or website. Sometimes you might think you are dealing with a LIT. Debt consultants often refer to Consumer Proposals and sometimes imply that this is a service they can provide, even though they cannot.

According to Directive 33, issued by the Superintendent of Bankruptcy, "Licensed trustees shall identify themselves using the professional designation “Licensed Insolvency Trustee” or the acronym “LIT” in all communications or representations falling within the purview of a licensed trustee under the BIA".

Therefore, if it is not immediately clear that the company or individual is a Licensed Insolvency Trustee, chances are they are not. For a list of valid Licensed Insolvency Trustees, try the Find an active Licensed Insolvency Trustee page on the Government of Canada's website.

Q. Where should I go to find out more about Consumer Proposals?

A Licensed Insolvency Trustee is your best resource to discuss whether a Consumer Proposal is right for you. For general information on Consumer Proposals, check out our web page. However, the best way to find out what a Consumer Proposal would look like for you is to book a free consultation with a LIT. 

CHARLA SMITH & COMPANY LTD.

Let us help you get relief from the burden caused by your debt. As a Licensed Insolvency Trustee, Charla Smith & Company are highly trained and experienced in debt relief solutions, and we take great pride in identifying the option that's the best fit for your unique situation. From advice on talking to your creditors to consumer proposals to bankruptcy and everything in between, we’re here to answer questions, guide and advise you so you can take back control of your financial situation. Serving Calgary, AB and surrounding areas.