Q.    I live in Kitchener, Ontario.  In January of 2009 I wanted to resolve a number of outstanding accounts that had been placed with collection agencies.  I went to see a mortgage broker and someone in their office referred me to a debt settlement firm.  I provided this firm with almost $30,000.  These monies were to be used (1) to pay the firm’s fees and (2) to make one-time lump sum settlements to my creditors.  I have tried contacting this firm for the past two months by both phone and by e-mail.  The company’s voicemail is full and my e-mail messages to the company have gone unanswered for the past two months.  Do you have any advice?

A.  Debt settlement is one of a number of options that consumers can take advantage of to deal with their debt situation.  Some consumers may want to do debt settlement on their own and avoid the expense of paying a firm to do the work for them.  Do-It-Yourselfers may want to consider purchasing a copy of my book The Wolf At The Door:  What To Do When Collection Agencies Come Calling (2010), published by McClelland & Stewart, which explains how a consumer can do debt settlement on their own.  

It is very important that anyone who wishes to hire a firm to provide debt settlement services do their homework.  You certainly don’t want to find yourself in a situation where the company you hire to perform debt settlement services has run off with your money or you have paid huge up-front fees and then you end up dropping out because you have been sued for a large sum of money or you cannot afford to make monthly contributions.

There are three things you should consider when choosing a firm to provide debt settlement services (1) are they licensed to provide debt settlement services?, (2) are they a reputable firm, and (3) what services are you receiving and are the fees reasonable given the inherent risks involved with debt settlement?

(1)    Is the firm licensed to provide debt settlement services?

In Canada a firm offering debt settlement services to the public needs to satisfy licensing requirements to offer debt settlement services.  As a general rule, this means that the firm offering debt settlement services in your province must hold a collection agency license issued by your provincial government. 

My law firm offers debt settlement services, but since lawyers are exempt from being licensed by the same statute as collection agencies, it is not necessary for my law firm to hold a collection agency license.  This makes sense because a lawyer’s conduct is already regulated by provincial law societies and there are all kinds of rules regulating monies held in trust in lawyers’ trust accounts on behalf of a lawyer’s clients.

(2)   Is the firm offering debt settlement services a reputable firm?

The fact that a firm offering debt settlement services satisfies licensing requirements is no guarantee that it is going to provide you with value for your money.  You should satisfy yourself that the firm is reputable.  Who are the principals of the firm?  What is their background?  Are the principals of the firm consulted by the media on consumer debt issues?  How long has the firm been in business?  Does the firm have a website and how extensive is it? 

(3)    What services are you receiving and are the fees reasonable?

What services is the firm going to be providing to you?  Can it help stop collection calls?  Can it assist you in any way in the event that you are sued by a creditor?

Hiring a firm to provide debt settlement services typically involves risks.  If you are in default on an outstanding account and you are not making any payments to a creditor while you wait for the appropriate time to negotiate a favourable lump sum settlement there is a chance that you might be sued for the entire balance, plus court costs, and pre and post-judgment interest.

You should avoid hiring a firm offering debt settlement services in circumstances where the firm is earning large fees over the first several months–the time when the firm is actually doing the least amount of work.  For example, you should avoid hiring a firm offering debt settlement services where they are charging up front fees equal to 20% or 25% of the total debt you want to eliminate.  If you drop out in the first six to 18 months because you have been sued by one or more creditors then the firm providing debt settlement services may have earned huge fees at a time when it it provided little, if anything of value, to you.

If you have had an experience with a debt settlement firm that you would like to share on our website I would invite you to contact our firm at 1 (866) 996-9941.

A third option for debt settlement

This blog has discussed (1) hiring a firm to perform debt settlement services on your behalf, and (2) being a Do-It-Yourselfer.  However, there is a third option which is being a Do-It-Yourselfer but hiring an expert to provide you with expert debt settlement advice as and when required.  This option should be significantly less expensive than hiring a debt settlement firm to negotiate settlements on your behalf.

You are welcome to call Mark Silverthorn toll free at 1 (866) 996-9941 for a free initial 10-minute  telephone consultation and learn more about how you might be able to hire our firm to provide telephone advice, on an ”as needed basis” as you settle your debts.