Having financial problems? Don't get caught in debt relief scams

With inflation, rising interest rates, and higher costs for gas, groceries and housing, many Canadians are feeling the financial pinch and now personal bankruptcies are on the rise.

"The activity from debt collectors has skyrocketed, so we are getting a lot more calls then we were year ago" said Doug Hoyes, a licensed insolvency trustee with Hoyes Michalos.

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During the pandemic many people got government benefits and interest rates were low, but now bankruptcies are rising to pre-pandemic levels and according to the Office of the Superintendent of Bankruptcy (OSB) Canadians are getting caught in debt relief scams.

OSB warns the scams often target indebted consumers by falsely promising insolvency options like consumer proposals and bankruptcies. Some unlicensed debt advisory firms charge hundreds or even thousands of dollars in unnecessary fees for services they are not licensed to provide.

Hoyes said beware debt consultants asking for fees up front claiming they can get you a better deal.

"If anyone is asking you for upfront fees, it's a scam it's as simple as that. A licenced insolvency trustee is not allowed to do that," said Hoyes.

Also watch out for anyone who makes unrealistic promises or pressures you to make quick decisions and if someone tells you to stop communicating with your creditors and paying them that could make your situation much worse.

"Once you stop paying your bills for a few weeks you'll be in trouble and there is going to be damage done to your credit bureau" said Andre Bolduc, the Chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) with represents about 90 per cent of licensed insolvency trustees in Canada.

Bolduc cautions that many debt reliefs scams operate through social media or you may get offers by text or e-mail.

"All these adds pop up that say there is a new government program you can get rid of 80 per cent of your debt which are not legitimate” said Bolduc.

Another sign they may not be the real deal is that they only offer online services with no option for in-person visits.

"If someone says under no circumstances can we meet with you in person that's a definite red flag” said Hoyes.

If you're having financial difficulties you can find a licenced insolvency trustee online who can discuss your situation for free.

They can help you create a debt management plan to pay back your creditors or file a consumer proposal. Only about 20 per cent of those who contact a trustee file for bankruptcy so if you're deep in debt, you have options.

Also watch out for fake loan scams. That's when a scammer says they can get you a loan, even if you have bad credit as long as pay money in advance for a processing fee. But once they get your money the loan never happens.