Debt Settlement Traps: What to Know Before You Sign Anything
Looking for help with debt takes courage. Taking your time to understand an offer is exactly the right instinct.
Quick Answer
A company offers your creditors less than you owe, but creditors don't have to agree, and you may still pay fees if they refuse. The Financial Consumer Agency of Canada lists high fees, late payments and unrealistic promises as risks.
FCAC explains that a debt settlement company negotiates with your creditors and offers an amount that's often lower than what you owe. If creditors accept, you pay the company, and it pays them. Most of these companies operate for profit and earn money from their fees.
They may use other names, such as debt consolidation, debt negotiation, debt relief, debt reduction or debt elimination.
- High-pressure sales, including aggressive phone calls. You don't need to agree right away.
- Advance or monthly fees, which you may owe even if creditors refuse to settle.
- Payments to your creditors delayed on purpose to push negotiations. Late payments harm your credit score.
- Loans offered to “fix” your score, where you may never receive the money and may still have to repay it.
- To reduce your debts by a large percentage, guaranteed.
- That creditors will always agree to negotiate.
- To stop wage garnishment, bank account seizures, court action or calls from creditors.
- To offer legal protection from creditors' actions like seizing assets.
FCAC says only a Licensed Insolvency Trustee can offer a consumer proposal or bankruptcy, and that it's illegal for a company to claim it can manage these if it doesn't employ one. FCAC notes a trustee's advice on these two options is typically free.
To check who's licensed, see the Office of the Superintendent of Bankruptcy . You can also read our guide on how a consumer proposal affects your credit.
- Read the full contract and ask about anything unclear.
- Don't agree to anything under pressure.
- If you sign a power of attorney, make sure the company agrees to tell you about every payment it makes, and ask for receipts.
- Check for complaints with your provincial or territorial consumer affairs office, which regulates these companies.
What to do now
Take these at your own pace. There's no deadline here.
- 1
Talk to an accredited credit counsellor or a Licensed Insolvency Trustee first. FCAC notes their advice is often free.
- 2
Map out what you owe, so you can compare any offer against a plan of your own.
Credit card debt guide - 3
Take one small step at a time. There's no deadline on getting this right.
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Educational only, not financial advice.