For those with debt, the only question that matters . . .
So, you’ve got some debt, and it feels like a mountain to you. You feel constantly weighed down by the burden of knowing that no matter what you do, the debt just doesn’t ever seem to go away. You look on-line, and you are overwhelmed by the choices you see. All kinds of people are offering to help you with your situation, and you really don’t know who you can trust or where to turn.
Let’s simplify this whole situation for you: there’s really only one question that matters: who is working for you exclusively, and will represent your interests exclusively? When you ask this question, you might be surprised at some of the answers you get. Everyone in the debt industry advertises that they’ll help you with your debt—the reality is that the vast majority of the companies are connected to and working for the creditors in some way or another. Let’s look one by one at some of the types of companies that work in this industry.
First of all, we have bankruptcy trustees or Licensed Insolvency Trustees (LIT’s) as they are now known. They are officers of the court, but this doesn’t make them impartial. Only licensed trustees can file either a bankruptcy or a consumer proposal, which are the two most effective solutions for getting rid of significant amounts of debt in Canada. But when you ask a bankruptcy trustee who they represent, they cannot represent the debtor exclusively. Why? Because they have a legal and a financial obligation to represent the interests of the creditors. Trustees can’t represent you solely because it would be an inherent conflict for them to do so.
Over half of the formal debt solutions filed in Canada every year are bankruptcies. For most personal bankruptcies the trustee will receive more money in fees than they will for filing a consumer proposal (the other primary type of debt solution) and their costs are lower because the bankruptcy will typically end in either 9 or 21 months for anyone who is filing for bankruptcy for the first time in their life. So bankruptcy can be heavily promoted as the best option by some trustees.
The other option is to file a consumer proposal. First, what exactly is a consumer proposal? A consumer proposal is simply a deal with the creditors where the debtor agrees to pay something more to the creditors than the creditors would receive if the debtor went bankrupt, but typically much less than 100% of the debt is paid back. It can be an excellent option for consumers, because they don’t have to go bankrupt. There is also a great deal more flexibility for the individual in their financial affairs once the creditors have agreed to the deal than if the person had filed for bankruptcy.
So what happens when a debtor works directly with a trustee’s office to file a proposal? Without going into a lengthy explanation it’s important to understand two key areas. First, the trustee has a financial and legal duty to the creditors when they are submitting the repayment terms of the proposal. Second, they are also placed in a difficult conflict as the trustee fees are established by the federal government in way that means the more expensive the proposal is for the debtors, the more money the trustee will make. Unfortunately, this carries with it a sad consequence. About 35% of the proposals filed every year in Canada end up failing, largely because they are too expensive for the debtor. It often seems affordable to begin with, but a proposal is usually paid back over five years and without a solid budget in place and the creation of an emergency fund if there are any of the hiccups that life sometimes brings, then the person may not be able to keep up with the agreed proposal payments.
The rules for a proposal are that if the debtor falls behind three months of payments, the proposal fails. When this happens, the deal with the creditors is cancelled and the debt the individual came into the proposal with is reinstated. For most debtors, their only option if this happens is to file a bankruptcy.
As a comparison, based on the more than 40,000 files that 4 Pillars consultants have worked on since 2002, the failure rate of proposals we assist our clients with is less than 3%. The proposals are filed with a trustee but the repayment terms are structured by 4 Pillars and because we work exclusively for the debtor, we are constantly striving to achieve the very best deal for our clients, so that when life’s hiccups do happen, there is much less likelihood that their proposal payments will be at risk and the majority of our clients actually pay the proposal off sooner than the agreed term which reduces the impact on their credit rating. In addition, 4 Pillars works with the client before the proposal is filed with the trustee to create a solid budget ensuring the proposal payment is easily affordable. 4 Pillars also has access to a proposal protection program that is exclusive to our offices. The proposal protection program ensures that if disability or job loss occurs for our client during the proposal period, the proposal payments will be made for our client for a period of time. Furthermore, if the person loses their life, the program pays out the proposal in full so it does not affect their estate and their beneficiaries. There is another brilliant aspect to this program: it is set up so it begins to rebuild our client’s credit rating after the proposal.
Let’s look at one of the other major players in the debt industry: the non-profit credit counselors. Working with a non-profit organization sounds great, right? You would think they are working for you but once again, you have to dig a little deeper and ask the right questions. Although the credit counselling societies don’t publish their funding sources as publicly as they used to, a visit to their website does reveal an interesting and critical piece of information.
Over 70% of their funding comes from donations made by the creditors and the credit granting community. So since a large portion of their funding comes from various credit granting organizations, how can these non-profit societies be working for the exclusive interest of the debtors? While they have different approaches for helping people deal with their debt, if the bulk of their funding comes from the banks and the credit card companies, surely that is where their allegiance will lie and that is ultimately whose interest they are keeping top of mind.
By contrast, 4 Pillars Consulting Group specializes in helping debtors find the best solution possible to their unique situation. Unlike the other organizations discussed above, we work EXCLUSIVELY for the debtor. We have no other interest than to educate our clients about all of their options to deal with their debt, help them find the very best solution, and then help them after the fact with industry-leading credit rebuilding and budgeting programs.
We are here in Kamloops, and have been for the past six years and a major driver of our success is the many referrals that our satisfied clients provide to us.
As a consumer it’s important to understand that you have choices and you are entitled to have your own dedicated representation through what can be a very difficult and stressful process. We live and breathe our commitment to clients, and it shows. If you have debt, don’t fret! Give us a call!
About the Author
Bob Hauck operates the 4 Pillars Kamloops, BC Debt Restructuring office. To contact him directly visit his website or call him directly at 250-434-4505.
