Debt settlement is the process whereby we will negotiate, on your behalf, with your creditors a reduced amount in exchange for a lump sum payment.
Only unsecured debts, such as credit card debts, lines of credits, loans and medical expenses to name a few, can be enrolled into the program. Secured debts, such as mortgages, car loans (where you are still in possession of the vehicle) and line of credits secured by the equity in your home, cannot be enrolled in the program. Canada Revenue income tax, HST and source deduction debts, student loans, court orders and fines and amounts required to be paid in order to receive a discharge from bankruptcy cannot be enrolled in the program.
The lump sum payment can be achieved in a few ways:
- By using the equity in your home with an institutional or private mortgage;
- Loans from an institutional or private lender;
- Funds saved on a monthly basis into a trust account.
For clients that have equity in their home and can qualify for a mortgage, either by refinancing or applying for a private second mortgage, we would use those mortgage funds to negotiate your debts and receive substantial savings.
The same is true for clients that can qualify for a personal or business loan; we are able to use those funds to settle debts on a lump sum basis.
For clients that are unable to put together a lump sum amount, we offer the option for our client’s to save funds, on a monthly basis, into a trust account where funds accumulate over time for the settlement process. Once enough funds are saved we will begin negotiating with your creditors on an individual basis.
Our legal fee for negotiating your debts is 17% (plus taxes) of the total enrolled debt amount. For the lump sum settlement plans, this 17% would be paid out with each debt that is settled. For instance, if we were to settle your Visa credit card debt of $10,000, on paying out such settlement we would collect our legal fee of $1,700 (plus taxes).
For settlement plans where funds need to accumulate in a trust account, our legal fee would be paid out over the first 18 months of the program for programs that are 36 months or more, or over half the duration of the term for programs that are less than 36 months. For instance, taking into consideration that same $10,000 Visa credit card, we would collect our legal fee of $1,700 (plus taxes) over the first 18 months of the program.
In addition, for monthly payment settlement plans, there is a monthly bank fee in the amount of $11.35. Lastly, there is a monthly maintenance fee which is $49 (plus applicable provincial and federal taxes) for each month that you are enrolled in the program after the initial 18 months, or after half the duration of the program, whichever is shorter.
Advantages of Debt Settlement
Very often we are able to settle debts with our client’s creditors for 30% – 50% of the existing balances. This is because we have built up a familiarity with the credit card companies and can come to a settlement agreement quicker and at a more favorable rate than you would be able to on your own.
Disadvantages of Debt Settlement
The most obvious disadvantage is that you are going to encounter annoying calls from your creditors because you have decided to withhold payments from them. Another disadvantage is that your credit rating will be damaged. The exact extent of the damage is client specific and takes into account many factors that are explained in a series of blogs on credit: Credit Rating. Another possibility is that your creditors may decide to commence legal action against you if they are able to track down any assets of yours, using a skip tracer. If they discover, in their search, an asset or assets that would satisfy the amount owing to them they could commence litigation.
How we protect your legal/financial interests?
Since we are a law firm we are able to advice you on the steps that are necessary to defend against any legal actions or claims. We offer many other debt resolution plans besides debt settlements and can, if you choose, transfer you into one of those options, being a consumer proposal or bankruptcy.
In addition, often but not always, we are able to negotiate with your creditors and have the whole debt purged from your credit report which minimizes any damage to your credit report.