Top signs of a debt management scam

Posted on 28 August 2023

Written by Gillian Goldblatt

Tackling debt can be overwhelming, with more Canadians facing financial challenges each year. Along the same note, debt settlement companies have also been growing quickly in Canada. Often, they will advertise credit counselling services, debt settlement, and debt management services. Most of the time, this offering sounds great. Of course we all want to reduce our debts substantially without having to file bankruptcy. But is this true? Unfortunately, more and more scammers have been preying on individuals in need of financial relief in Canada. As consumer protection is a priority, it is so important to be vigilant of companies offering debt management solutions. While some are legitimate, others can be scams that cause further financial distress and a loss of personal information. In this article, we share the top signs of a debt management scam in Canada to empower you to make informed decisions about your finances and protect yourself from scams.

Top signs of a debt management scam

When looking for a debt management solution, here are some of the signs of a debt management scam you should be aware of:

‘Government approved’ firms

Some debt settlement companies will advertise that they are ‘government approved’. While often intended to make the consumer feel comfortable, it is completely misleading as there is no special government licensing program for debt settlement companies, or any kind of government funding. The only genuine government licensed professionals in Canada are Licensed Insolvency Trustee. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief, including bankruptcy and consumer proposals. They are a trusted source of information and advice if you are struggling with overwhelming debts. At Spergel, we have over thirty years’ experience of helping Canadians to begin a fresh financial future.

False promises to offer complete protection from creditors

Another of the top signs of a debt management scam is the misleading claim to protect you from creditors. Debt settlement companies are only able to negotiate a debt settlement on your behalf – nothing more. While attempting to reach a debt settlement, there is nothing to prevent a creditor from continuing to pursue you, including taking you to court in order to try to gain a wage garnishment or to seize your assets. It is important to note that only filing a consumer proposal or bankruptcy – via a Licensed Insolvency Trustee – can generate a stay of proceedings. A stay of proceedings offers full protection from your creditors, putting an immediate end to any legal action including wage garnishments, liens on your property, or bank account freezes. This means that filing a consumer proposal or bankruptcy are the only way to guarantee full protection from your unsecured creditors.

Successful track record claims

Many debt settlement agencies will claim that they have negotiated thousands of successful debt settlements for thousands of dollars. While this may well be true, these statistics do not represent creditors that do not wish to settle. This can hinder the statistics – if, for instance, only two of your six creditors agree to settle your outstanding debts, this may not be considered a successful outcome. You should note that any creditors that refuse to settle remain your responsibility to deal with directly. The only way to ensure engagement of creditors in a form of debt relief is via a Licensed Insolvency Trustee when filing either bankruptcy or a consumer proposal.

Large upfront fees

Legitimate debt relief companies in Canada will never charge upfront fees for their services. If a debt settlement company demands a payment before offering any help, alarm bells should ring. Canadian law does not endorse this practice in order to protect individuals from falling for scams. Some debt settlement agencies will charge you a fee to collection your information, before simply referring you to a Licensed Insolvency Trustee to file a legal form of debt relief. If you want to find out what your available debt relief options are, good Licensed Insolvency Trustees will offer an initial free consultation. Book yours with Spergel today.

Claiming to protect your credit score

Some debt settlement companies may claim they will protect your credit score when coordinating a debt settlement. Yet having any delay in your regular monthly payments – or failing to make a payment – will affect your credit rating. A reputable debt advisor will explain all of your available debt relief options and how they will impact your credit rating. If you do not have all of your options explained to you, they are likely just trying to sell you the service that they offer.

Guaranteeing debt relief

One of the top signs of a debt management scam is a company that guaranteed to clear your debt without reviewing your finances in detail beforehand. There is no single debt relief solution that works for everyone. Reputable debt management companies will provide realistic debt relief options based on your unique financial circumstances and challenges.

Applying pressure to sign

Debt management scammers will likely use pressurizing tactics to encourage you to make a quick decision. Legitimate debt relief companies will give you the time you need to understand the terms and conditions of the debt relief method you choose, answer any questions you might have, and explain the processes in detail. Another red flag is a company that avoids being transparent about their fees, services, and the outcomes of their support.

A lack of physical address or contact details

Reputable debt management companies will have a physical office address and contact information. You should be cautious of any companies that do not, or refuse to share their address. In Canada, all debt management companies should also be licensed and regulated. You can run a simple check to make the a company is registered via the Office of the Superintendent of Bankruptcy.

Unprofessional conduct

We recommend that you trust your instincts – if you are receiving unsolicited calls from companies claiming they can solve your debt problems, or demand sensitive personal details upfront, this is likely a red flag. Legitimate debt management companies will not reach out without consent. Equally, if anyone you speak to from the company is rude or unprofessional, it is a good indicator that they are not legitimate.

How to avoid a debt management scam

In order to avoid facing a debt management scam, it is important to be vigilant and to ask plenty of questions. A reputable company will meet with you – often initially for a free consultation – and review your financial circumstances before outlining all your available debt relief options. For many individuals, meeting with a company that is local so you can speak in person is valuable. Here are some questions to ask that might help you to avoid the top signs of a debt management scam:

  • Which certifications do they have? Remember that Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief
  • What experience do they have? At Spergel, we have been helping Canadians begin fresh financial futures for over thirty years
  • Is the information provided free? Most reputable debt management firms will offer a free initial no-obligation consultation
  • Do they provide services other than debt management? Do note only Licensed Insolvency Trustees can file bankruptcy or consumer proposals
  • Will you be taught how to budget and other money management skills?
  • Does the plan include all of your debts?
  • Will there be a formal contract?
  • Will you be issued regular updates with the payments that are being made to your creditors?

Ultimately, you should not be pressured into signing up to a debt management program. Ensure to do your research, ask the right questions, and make a decision based on facts. Remember that Licensed Insolvency Trustees are the professionals that can share all of your options with you for free, to empower you to make the right decision.

How to protect yourself from a debt management scam

When you are facing financial challenges, the last thing you need is to get yourself involved in a debt management scam. We recommend following these steps:

  • Carry out careful research on debt management companies, including client reviews and official websites to ensure a company is reputable
  • Ask for recommendations from trusted friends and family members
  • Verify a company’s license – ensure that a company is authorized to provide debt management services
  • Read your contract carefully, reviewing all conditions before signing
  • Speak to a Licensed Insolvency Trustee. If in doubt, rest assured that a Licensed Insolvency Trustee is a trusted, reputable professional who can offer financial guidance

If you think you might have encountered a debt management scam or are worried about a company’s reputation, report the issue to the Canadian Anti-Fraud Centre. By being cautious and speaking to the right professionals, you can help to protect yourself from debt management scams and address your financial difficulties appropriately.

Want to learn more about the top signs of a debt management scam? Book a free consultation with an experienced Licensed Insolvency Trustee at Spergel. We have been helping Canadians on their journey to a fresh financial future for over thirty years, and we are here to help you too. We will review your financial circumstances and make you aware of all of your debt relief options. Reach out today – you owe it to yourself.

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Gillian Goldblatt

Gillian Goldblatt is a Chartered Professional Accountant and Insolvency and Restructuring Professional. She is also an award-winning LIT (Licensed Insolvency Trustee) and Vice-Chair of the Ontario Association of Insolvency & Restructuring Practitioners Board. As Spergel's resident expert on debt consolidation and financial literacy, you can find Gillian being interviewed regularly on popular Canadian news programs when she's not at the office helping individuals and businesses get back on track.

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