Trust your instincts on telephone pitches

Christmas cheer, menorahs, sneezes, coughs and …. concerning calls? Apparently it is the season.

Within several weeks I have seen multiple clients losing thousands of dollars to “so called” debt counselling companies. Their creditors were never contacted. Some of these companies are not always acting in your best interest.

Ironically, I too, was personally contacted by a “debt settlement” agency and another company misrepresenting themselves as Microsoft, wanting access to my computer to “fix a virus.” Yes Virginia, there is karma.

They called someone who writes money management articles and manages a debt counselling unit at a long-standing, accredited agency. So I decided to play along (my friends tell me that I am very good at playing dumb).

I was given three options presented in a highly biased manner. I was encouraged to open up a new bank account and begin depositing funds.

What I know from my experience working in the debt counselling arena, is frequently the first several thousand dollars deposited are applied entirely to their fees, not your creditors (assuming your creditors are even contacted).

Furthermore, many major banks and creditors often refuse to work with many of these debt settlement companies. They will only work with accredited not-for-profit credit counselling agencies or licensed trustees. In addition, the information I was provided on credit rating implications was incorrect.

Most surprising and highly disturbing was how convincing, composed and polished these calls sounded. I can see how someone could get entangled. So how does one know?

Companies focusing on your best interest do not phone you and ask for bank account information or request access to your computer.

Be suspicious of anybody initiating contact and requesting personal access or information. Bricks and mortar can also be a cue.

A long-standing physical presence in a community warrants more confidence than a call centre that can be quickly established and dismantled. Contacting a government agency such as the Ministry of Consumer Services can help in determining services that will work in your best interest. And most of all, trust your instinct.

What we think of as our sixth sense is often an accumulation of experiences that our subconscious has processed. Pay attention to it.

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Yesterday I received this month’s coupon booklet in my mailbox – I usually leaf through it quickly just see if there are any great deals to be found and low and behold, on page 5, there’s an ad promising to reduce my debt by up to 75%! What a great deal.

Or is it?

The ad is for a company called 4Pillars Personal Debt Restucturing and it reads pretty well – reduce your debt, protect your assets, avoid bankruptcy, low payments and 0% interest. I think the “The Procedure” that the ad is selling you (that they don’t mention by name) is something called a consumer proposal.

What the ad doesn’t tell you is that 4Pillars is not licenced by the government to file consumer proposals. To file a consumer proposal you MUST deal directly with a trustee in bankruptcy.

So what’s their angle? They offer a “free no obligation consultation” so presumably they’ll tell you right away that to file a consumer proposal you need to see as trustee and send you on your way. (That’s what they do with people that need to file bankruptcy, or so I have been told by people that have contacted them).

Nope. After your first free session you’ll sign an agreement and pay them a fee. These fees run into the hundreds and even thousands of dollars. Only after you’ve paid your fee will you be sent to a trustee to actually deal with your debts.

So what’s wrong with that?

Well, you can save the fee by speaking directly to a trustee. There are no upfront fees.

It’s your choice, but before you sign any deal, before you pay 4Pillars any fees, give us a call. We’ll review your situation and your options for free. If after you’ve spoken to us you still think 4Pillars is the way to go then go back to them. It will cost you a few minutes of your time to talk to us, but it will save you hundreds or even thousands of dollars in useless fees…

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Our last couple of posting were all about how to save for next Christmas. Of course you may not be able to do that if you are bogged down with thousands of dollars in debt. If that’s the case then it may be time for you to look at filing a consumer proposal.

A consumer proposal is a legal procedure whereby you repay a portion of what you owe. The idea is simple, if you can’t afford to repay everything that you owe, maybe you can afford to pay back part of it.

When you file a consumer proposal creditor calls will stop. If a debt has gone to collections, even if they’ve taken legal action against you, when you file a consumer proposal the calls will stop.

When you file a consumer proposal interest charges will stop. How many times have you said to yourself, “all I am doing every month is paying the interest – the debt never goes down!” When you file a consumer proposal every payment goes towards the debt – there are no new interest charges.

When you file a consumer proposal you will be encouraged to save. The last two articles were about saving for next Christmas instead of relying on credit. If your excuse for not saving has been that you’ve got too much debt a consumer proposal will solve that problem and deal with the debt. You will be able to save.

Does all of this sound too good to be true? Well, it is true – it’s the law. The biggest down-side to a consumer proposal is that you will not qualify for any new credit while you are in the proposal and for two or three years afterwards. How many times have you said to yourself, “I’d stop using my credit cards if I had any money left over after paying the bills each month, but I never do because the bills are too high…”

One word of warning – be careful who you deal with. Consumer proposals may only be filed by licenced trustees in bankruptcy. There are dozens of scam artists (most call themselves debt consultants or credit counsellors) that will offer to reduce your debt by up to 70%. They do so by charging you a fee and then referring you to a licenced trustee to file a consumer proposal. Save yourself the fee and call us directly.

If you’ve got more debt than you can deal with then a consumer proposal may be right for you. Give us a call to learn more.

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The last posting we made suggested that in order to avoid having Christmas bills next year, you should try and save money each month this year. It’s a great idea, but we didn’t tell you how to do it. Well, that’s what this posting is all about.

We know you won’t like this, but we’re going to use the “B” word – we’re going to talk about budgeting.

We know, you’ve heard it all before, “just cut a little here and there and you’ll have your $100 in no time”. Believe it or not, it’s true.

The first step is to try and figure out where your money goes every month. If you don’t know how you’re spending your money then you can’t decide how to cut back. There are lots of websites that will tell you how to do this – the simplest approach is to write down every dollar (every penny!) that you spend. If you are paid weekly then I suggest you do this weekly for 3 or 4 weeks. If you are paid every two weeks then write things down for two weeks.

Once you’ve got your detailed list, go through it with a “critical eye” – did you need to spend every dollar that you spent? What part of this list can you do without? Now repeat the process. Write down everything you spend for the next week (or two) and actually cut out (don’t buy) the things you decided you can do without from your first list. Go through the new list with a “critical eye” etc., etc., etc…

In order to save money you need to get your spending to the point that it is less than your pay. Your goal is to come up with enough to save for next Christmas, but don’t stop there. If you can save even more that’s great! Use the extra savings to pay down debt (last year’s Christmas bills).

That’s all there is to this. That’s all budgeting really means.

Once you take control of your spending, you actually get control of your life. One of the worst things to worry about is money (the other is love, but we’re going to start talking about that!). None of this is easy, but it will be worth it in the end. Just take it one week at a time…

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I hate to be the bearer of bad news, but you’ve got about two weeks before the first round of “Christmas bills” start arriving in your mail box…

If you’d like to avoid this problem next year, now is the time to start planning for Christmas 2012.  I can see your eyes rolling in your head, “We just cleaned up from this Christmas and you want us to start thinking about next year?  You’re nuts!” 

Maybe, but give me a couple of minutes of your time to make a serious suggestion. 

As the Christmas bills roll in, try and figure out just how much you spent this year.  $300?  $500?  $1,000?  More?  Whatever the amount, did you pay with cash or put it on credit?  If you paid on credit, do you have a plan to pay off the debt? 

Most people over spend at Christmas – which is ok, but only if they have a plan to pay for it.

The best way to avoid Christmas bills in 2012 is to save enough money between now and then to pay cash for your gift buying this year.  Take whatever amount you spent in 2011 and divide it by 10 – that’s your monthly saving target.

If you spent $1,000 on Christmas 2011 and you want to pay cash for Christmas 2012 then you need to find a way to set aside $100 per month starting in February (and running to November) in order to have the money you need to do so. 

The hard part, the really hard part, is doing this for the first time.  If you used credit to pay for your shopping this Christmas, then you have those bills to pay off.  Finding the extra $100 (or whatever number you need) every month will be difficult.  Having the discipline not to spend your Christmas savings may be even harder, but you need to do it. 

It is like dieting (the OTHER Christmas nightmare).   Set a goal for yourself – in this case saving a set amount of money each month and stick to it. 

Happy New Year everyone – here’s hoping 2012 finds you happy, healthy and prosperous.

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Yesterday I met with a person that signed on with Cambridge Life Solutions back in the summer and was more than a little dissatisfied with what they had done for him.

This gentleman had never missed a payment on his debts which totaled $45,000.

Cambridge Life Solutions advised him to stop making all of his payments and to sign on with them for a debt settlement plan. He specifically asked if Canadian banks would deal with Cambridge Life Solutions and he was assured that they would, well that’s not quite what happened…

This gentleman told me has been paying slightly less than $700 a month to Cambridge Life Solutions since July – to date he has paid over $3,000. In September the collection agency calls started from his creditors. When he asked the representative from CIBC why they were calling he was told quite clearly that the bank does not work with or recognize Cambridge Life Solutions. So what was he paying them for?

He came to see us to file a consumer proposal. Based on his debts and his income he is going to offer to repay $15,000 of the $45,000 that he owes – 1/3 of his debt, which is pretty much the standard deal for most people. (If you file a consumer proposal you need to offer your creditors the greater of (1) what they might receive if you filed for bankruptcy; and (2) enough for them to agree which is currently 1/3 of your debt).

Needless to say, the gentleman is pleased with the proposal and “mad as hell” at Cambridge Life Solutions. I suggested he call and ask for a refund – who knows, maybe he’ll even get one…

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Will your trustee be there tomorrow? This sounds like a stupid question, but we were just contacted by a national accounting firm and asked if we’d like to purchase their personal bankruptcy practice as they no longer think it is compatible with their other lines of business. That’s not surprising. Big accounting firms do big audits for big corporations. They aren’t set up to meet with individuals in financial trouble.

Something similar happened about twelve years ago when another national firm made the same decision. One day they were accepting new clients. The next day they were closed for business.

Industry scuttlebutt says that it is only a matter of time until all of the national firms make the same decision. After all there only are 2 or 3 left. Accountants that are dealing with multi-national companies and huge corporations aren’t all that interested in helping the average Joe deal with his debts. Well, if that’s the case then they should get on with it.

Doug Hoyes and I left a national accounting firm to set up our firm because we didn’t feel the big firm we were with was really interested in helping Joe out. We thought we could do it better.

Our firm has grown to be the fourth largest provider of personal insolvency services in Canada, numbers 1, 2 and 3 are all national firms – I suppose we’ll be third thanks to these guys closing. We’ve grown by adding new trustees and new offices. Each of our trustees sees only people in 1 or 2 locations and these offices are located in the communities where they live. I have lived in Guelph for most of my life. We don’t have people driving all over the province to meet with you in a donut shop. We know you want to see the same people when you come in, you want to know who you can call and who will sort out your problems.

If you are experiencing financial difficulties give us a call at 310-PLAN or e-mail me – we can walk your through your options over the phone or book you a face to face consultation with one of our professionals. We can explain how a consumer proposal can help you avoid bankruptcy. Either way there is no charge for the session and most people find it helpful.

We’re in this for the long run – it is all that we do and we’ll be here tomorrow.

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Ted Michalos, Guelph Bankruptcy Trustee

2008 is when the current financial mess stated to affect the general population. I remember that immediately following Labour Day our phones started ringing off the hook and the number of people coming into our offices jumped by 50%.

2009 may very well be a year that most people want to forget. Our office continued to be inundated with calls and by the end of the year overall bankruptcy filings were up more than 36% over the previous year.

If you consider 2008 and 2009 the first two bad things, well then 2010 is likely going to provide the third.

From a statistical standpoint, it appears that we have crested the wave. Personal bankruptcy filings have shown slight decreases in the last few months of 2009. This statistic is deceptive. Since they are showing year over year decreases when compared to 2009 (a year of record bankruptcy filings). If you go back to 2007, the last year before the financial storm hit, we are still experiencing increases of more than 40%.

The bad news is likely to continue…

As financial professionals, what we find most interesting (frustrating for individuals) is that interest rates are at historic lows. If people could consolidate or refinance at these lower rates then a significant portion of the people coming through our doors wouldn’t have to. Unfortunately, these options just aren’t available for the average person. For whatever reason (and they are complicated), the lenders seem to prefer to have accounts written off, as opposed to recovering their money at lower rate of return.

We have had more calls in the first half of January this year than we did last year – a good indication that people will continue to file personal bankruptcy at historically high levels for the forseeable future.

If you are one of the many residents of Guelph suffering through the recession and you have more debt than you can handle, call my Guelph office at 310-PLAN, or e-mail me to set up a no charge initial consultation.

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Yes and no. We will deal with the yes part first:

There is an automatic feature of bankruptcy law in Canada that puts in place something called a “Stay of Proceedings” immediately upon a person filing an assignment in bankruptcy or a consumer proposal. This isn’t something you have to ask the Court to do for you;  it is literally an automatic feature of the law.

The way it works is simple: once you file either for bankruptcy or a consumer proposal your trustee will send a legal notice (the actual Stay of Proceedings) to any person or business currently engaged in legal action against you. It doesn’t matter if you have only just received the Court papers informing you of the lawsuit, or if the creditor has already been to Court and has an Order to garnishee you wages. The Stay is automatic and stops the process immediately. If someone tries to start a legal action after you have filed, the Stay stops them. If you receive notice of the action you inform your trustee and they will send out the Stay to stop things from progressing.

The Stay is also sent to the Court that is handling the legal action and if the creditor has already obtained a Judgment against you, a copy is sent to your employer as well to stop the garnishee. Your trustee has to send a copy to employer in order to stop the garnishee.  The Stay provides your employer with the legal obligation to stop taking money from your pay cheque; without the Stay the garnishee will continue.

That leads us to the most common difficulty with the Stay of Proceedings; many (most) payroll people have never seen this type of document before so it is not uncommon for them to become confused and ask for confirmation from the creditor that the garnishee must stop. It doesn’t happen a lot, but there are times when a trustee must threaten legal action against an employer (or a creditor) for failing to abide by a Stay of Proceedings. If this happens to you, keep in mind that the problem isn’t because of what your trustee is doing, rather it is because someone at your work place is unfamiliar with bankruptcy law.

And now for the no side:

The Stay of Proceedings is only effective against debts that are dischargeable (can be eliminated) by bankruptcy law. Things like child support, spousal support, restitution orders, repayment of debts based on fraud or misrepresentation and some others are not stopped. To see a complete list of these debts, take a look at Section 178 of the Bankruptcy and Insolvency Act of Canada.

Further the automatic staying provisions of bankruptcy law can be lifted. Your creditors have the right to apply to the Court and ask that they be allowed to continue a specific legal action against you if they can demonstrate to the Court that there are reasonable grounds to do so. A good example of this might be a debt that was incurred as a result of fraud or misrepresentation. Let’s say you applied to the bank for a loan to buy a car and instead you took the money to a casino (or took a trip or gave it to your sister). This sounds like a case where the bank might argue that you misrepresented your intentions and therefore the bank might apply to the Court for permission to sue you even though you have filed for bankruptcy.

Further, if someone has started a large civil suit against you and you think that you may file for bankruptcy to stop them, well, you need to think again. If someone really wants their day in Court and they are willing to pay for it, then after you file for bankruptcy they may apply to the Court to have the Stay lifted. The application takes the form of hearing so that you can present your arguments for not allowing the stay to be lifted. If you don’t attend the hearing (and that usually means hiring a lawyer to assist you; this is not something your trustee can do) the Court may simply allow the Stay to be lifted then you are back where you started.

If you are being threatened with a wage garnishee or a lawsuit by a creditor, or if you already been sued and you need the garnishee to stop you should speak to a trustee directly. They will want to see whatever documents you have regarding the legal action so that your trustee can determine if the Stay of Proceedings will help you solve your financial problems.

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I read an article recently about the American Dream.  According to this report, 5% of people in the United States earning $25,000 a year or less felt that they were living the American Dream.  When the annual income went up to $60,000 a year the percentage rate only raised 1%, giving credibility to the reality that the more we have the more we want.

The article went on to describe the life of a young woman working in the financial world who was making an enormous amount of money and living in a lifestyle that allowed her to hire people to do everything for her, from personal shopping to walking her dog and everything in between. Her comments about this were that even though she enjoyed riding the fast train in some ways it felt very unreal to her. Her lifestyle also led her to fall heavily in debt as she felt that the income would always be there. With the economic downturn she lost her job and went from the fast track to no track. She moved to a smaller community, filed for bankruptcy and started over and today she feels that she got her life back. She is living a much healthier and happier life and this meaningful social change was actually a good thing for her (she enjoys walking her dog herself!).

I speak to people every day who have found themselves in similar circumstances as the woman in this article. It seems that this change in the economic environment has happened very quickly and a lot of people have been caught wondering what happened. At Hoyes Michalos & Associates Inc. we have helped many, many people to find a better way of life than running the race to keep up with payments. If you are finding yourself exhausted from trying to keep up this pace give send us an e-mail or call us at 310-PLAN to speak to one of our professionals. We would be happy to review your situation and answer any questions you may have. Filing a consumer proposal to creditors or personal bankruptcy may solve your situation.

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