FEATURES
DEBT SETTLEMENT
Is Bill 55 working? Five years in the making, this bill addressing debt settlement practices has finally become law. Now, three months in, are the new rules benefiting consumers? Josh Balner, owner of Strategic Credit Solutions, explains
ON JULY 1, the Ministry of Consumer Services Protection Branch wrapped up five years of deliberation on Bill 55, “an Act to amend the Collection Agencies Act, the Consumer Protection Act 2002 and the Real Estate and Business Brokers Act 2002 and to make consequential amendments to other Acts,” implementing it into law. The legislation is meant to address mounting concern about the legitimacy of the debt settlement practice and define this growing market as its own industry. The truth about debt settlement is that it is the most beneficial way to reduce balances on outstanding collection items and judgments for a very specific candidate: those with some equity in their home or the ability to raise a lump sum. While extremely beneficial for consumers with the access to lump sums of money, this structure is detrimental to a vast majority of people: those without the means to raise between 40% and 80% of the total debt load.
The danger of consumer proposals Although arguably the most practical solution for homeowners, debt settlement was veiled within the mortgage industry by the presence of unlicensed companies and the prevalence of alternatives like consumer proposals and credit counselling. According to Consumer-Proposal. org, the number of consumer proposals filed has been steadily rising on an annual basis
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since 2007, up to 53,000 filed last year, while bankruptcy enrolment has been steadily declining, down to just over 60,000. Some may construe this as a favourable trend; however, most consumers have a very limited understanding of the consumer proposal process, and end up hastily agreeing to often unfavourable conditions. What the majority of Canadians don’t know is that a consumer proposal has a very similar effect to a formal bankruptcy on their credit, lasting three years beyond the date of the last payment made on the proposal as a public record item for up to eight years. In addition to the adverse effect on credit, if the consumer has a home or any other form of tangible asset, it must be claimed and will adjust the cost of repayment to the creditors. In certain cases, filing a consumer proposal as a homeowner will result in creditor repay ment to 100% of the debt on an interest-free payment plan. Consumer proposals like bankruptcy, credit counselling services and debt settlement are a niche solution, primarily for those without any assets. For mortgage professionals electing to service the high-risk segment of the industry, sourcing money from private investors and high-risk institutions can be costly to their clients, often causing them to lose faith in their representative and seek alternative advice. To present the client with a more appealing
solution, some of these brokers have been undertaking negotiations on behalf of their clients to offset the costs. Bill 55 has removed any ambiguity on the matter, and now more than ever, it is important for these mortgage professionals to be cognizant of legitimate debt settlement programs and the benefit they present for all parties involved.
Debt settlement basics In the face of more stringent lending legislation, fear of rapid inflation and no foreseeable end to high consumer debt, it seems the demand for debt rescue programs will continue to grow. It has been widely speculated that debt settlement is the solution to an economy plagued by inequality, as it allows sizeable relief for a debt-riddled consumer, while allowing the creditor to recover a large percentage of their losses within 30 days. A well-coordinated debt
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2015-10-07 11:59:41 AM