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Printer friendlyFour important reasons why you should speak to Mark Silverthorn before contacting a credit counselling agency
You may want to speak to Mark Silverthorn before you talk to a non-lawyer at a credit counselling agency.
1.You may not have to pay the debt
Based on his experience as a former collection agency insider Mark Silverthorn is qualified to advise you why you may not have to pay a debt the collection agency claims you owe. If you contact a credit counselling agency you should not expect that its employees will fully explore reasons, both legal and practical, why you may not have to pay a debt.
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You do not want to pay the entire debt claimed by the creditor
If you arrange a debt management plan through a credit counselling agency you should expect to pay 100% of your outstanding debt over a period not to exceed five years. Creditors who are contacted by credit counselling agencies insist on the repayment of the entire debt. Credit counselling agencies typically only negotiate two limited issues: The the number of months or years to repay the entire debt and whether or not the creditor will agree to a reduction in the amount of interest that will accrue in the future. Credit counselling agencies cannot negotiate settlements under which you settle a debt in exchange for a lump sum payment that is less than the full amount owing.
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A debt management plan arranged through a credit counselling agency does not compare well with other debt elimination strategies
As noted earlier, if you arrange to repay a debt through a credit counselling agency you will be paying 100% of the outstanding debt. You may also be paying some or all of the future interest accruing on your outstanding balance. In addition, if you utilize the services of a for-profit or independent credit counselling agency you will be paying fees to the credit counselling agency. These fees may be equal to 15% of the monies you are paying to a creditor and in some cases a for-profit or independent credit counselling agency may want all of these fees paid in advance. If you were to arrange to repay an existing debt through a non-profit credit counselling agency you might also be required to pay a fee or make a donation to the non-profit credit counselling agency but this amount would likely be in the neighbourhood of 5% of your payments to your creditor.
It might be possible for you to settle an outstanding consumer debt using a lump sum payment for anywhere between 5% and 85% of the outstanding balance. In addition, you may decide not to pay a consumer debt where the limitation period has expired or it will soon expire.
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Your credit counselling agency may have a conflict of interest
In some situations credit counselling agencies may be in awkward position effectively representing consumers because of their dependence upon financial support from creditors. Non-profit credit counselling agencies may receive little or no monies from an individual consumer. However, these agencies receive a significant amount of their revenues from creditors in the form of what the industry refers to as a 'donation' from creditors. These creditor donations can be as much as 22 percent of the monies a consumer pays a creditor under a repayment plan. If a lawyer representing a consumer was to receive this kind of 'donation' from a creditor it would be characterized as a 'kickback' and be grounds for the lawyer's disbarment.
Both non-profit and for-profit or independent credit counselling agencies may have a conflict of interest when working with a consumer to determine which unsecured debts should be repaid through a debt management plan. In the case of a non-profit credit counselling agency, the more unsecured debts that are included in a consumer's debt management plan the greater the potential 'donations' the non-profit credit counselling agency might receive from creditors. In the case of a for-profit or independent credit counselling agency, the more unsecured debts that are included in a consumer's debt management plan, the larger the amount of fees the agency will generate.
Repaying an unsecured debt through a credit counselling agency is but one of eight options you may have for dealing with an unsecured debt. These 8 options are dealt with in detail in Mark Silverthorn's e-book titled A How-to Guide for Dealing with Collection Agencies in Canada . Before you make the decision to repay a debt in full using a debt management plan arranged through a credit counselling agency you might want to explore your options by speaking to Mark Silverthorn.
CBC Marketplace did a story on March 19, 2010, called "The Debt Trap" about non-profit credit counselling in Canada, and more particularly about one such agency called In Charge Canada.