Watch out for overly attractive offers to get rid of your debts

Every debtor’s situation is unique – and the same goes for the solution. That’s why any self-respecting debt professional would never guarantee results without first analyzing the client’s file. And yet some people have no qualms about making attractive offers along the lines of “Reduce your debts by 70% without declaring bankruptcy!” The fact is that most such sensational offers are only seductive marketing campaigns to attract as many economically vulnerable consumers as possible as potential clients, even though such offers only apply in a very few cases.

Here are a few reasons to be super-cautious:

1. Excessively high instalment payments

   In some cases where the total debt is extremely high, the settlement offer is based on a predetermined percentage that might not suit the debtor’s budget. In the example of over $150,000 in total debt and $3,000 in total monthly income, a 70% reduction in debt would not be acceptable. This is because a debtor in such a situation would not have enough money left over after meeting their basic living expenses to pay the instalment payments specified in their proposal to their creditors.

2.  The stability of the debtor’s overall income

   In a consumer proposal, the debtor’s overall income must be considered in order to make a realistic repayment offer to the creditors. In the case of seasonal workers for instance, blindly adopting a preset percentage could have serious consequences for them because their income naturally fluctuates enormously during the year. It is therefore difficult for them to make payments during certain periods, particularly if the advisor concerned had simply applied a percentage of the total debt amount without considering the client’s ability to pay.

3. Mortgages and vehicle loans

   A fixed repayment offer based on a predetermined percentage of the total debt will not reduce the amount owed on debts like mortgages and vehicle loans. That is why it is necessary when drafting a consumer proposal to consider how these expenses will impact your ability to take care of your other debts.

4. Hydro bills

   If your electricity has been cut off because of unpaid bills, it can only be restored after full payment of all the outstanding bills.

5. Non-dischargeable debts

   Apart from a few specific exceptions, certain debts like student loans and employment insurance or social assistance benefit overpayments are not dischargeable. Although these debts can be included in a consumer proposal, any outstanding balances will still remain after the consumer proposal has been fully paid off. In most cases, such debts have to be paid in their totality.

6. The trustee in bankruptcy’s fees

   Since the trustee’s fees, as set by legislation, are paid from the payments received to repay the creditors, the consumer proposal needs to include these fees in order to be accepted. For example, it would be unrealistic to think that an offer of $1,800 as 30 cents on the dollar to settle a $6,000 debt would be accepted when $1,670 of this would go to the trustee as the first priority.

7. A risk worth taking?

   In the event that an offer of a 30% settlement on your debts is rejected by your creditors, you run the risk of losing the payments you’ve already made. To avoid this, your only option would be to increase your offer (to 60 %, for example). It is therefore a big risk to take.

If you’re in financial difficulties and an insolvency professional promises to reduce your total debt by 70%, first stop and think whether their primary objective isn’t rather to entice you into their office instead of truly helping you.

Before preparing the offer to make to your creditors, a competent trustee in bankruptcy will first get to know your personal situation. Then, he will work with you to draw up a list of your possessions and debts and then establish your budget based on your personal and family circumstances. That is why every debtor’s situation requires a customized plan. From the debtor’s standpoint, the settlement offer must be reasonable but not financially overwhelming. To be acceptable from the creditors’ standpoint, the offer must also be more attractive than the debtor’s bankruptcy.

For any questions about attractive offers that seem “too good to be true,” do not hesitate to contact a Ginsberg Gingras professional. The first consultation can take place either over the phone or in person, without any obligation on your part. No appointment needed.