How does debt settlement work in Canada?
In short
A licensed debt settlement company approaches your unsecured creditors and tries to agree a reduced lump sum or repayment arrangement. Creditors are under no obligation to agree. Provincial law caps what these companies may charge and generally bars them from collecting fees before a settlement is actually reached.
Updated
What are the fee rules?
The rules are provincial. Ontario, for example, registers providers, caps fees, bars charging before a settlement is reached and gives you ten days to cancel. Ask for the fee schedule in writing and verify the licence with the provincial regulator.
What are the risks?
Accounts usually continue to age while a settlement is pursued, which affects your credit file and can attract collection activity. A settled account is also generally reported as settled for less than the full amount rather than paid in full.
How does it compare with a proposal?
A consumer proposal binds every creditor covered once enough of them accept, and its costs are set by federal regulation. A settlement is negotiated creditor by creditor with no assured outcome. A trustee will compare both for your situation at no cost.
Frequently asked questions
- Do creditors have to negotiate?
- No. Participation is entirely voluntary on the creditor's side, and some will not deal with settlement companies at all. That is why no outcome can be assured in advance.
- How long does the process take?
- It depends on your creditors, your balances and how quickly you can accumulate funds to offer. Any company quoting a fixed timeline before reviewing your accounts is telling you something about itself.
- Is this the route you are paid for?
- Yes, and we say so plainly. Licensed settlement companies and consolidation lenders pay us for introductions. Trustee and non-profit routes earn us nothing and are never sold.