Dealing with Debt (10:V)

A. Introduction

NOTE: The following applies to individuals only.

Before advising a client about dealing with their debts, the student should ensure that the client, in fact, is liable for the alleged debts. Be sure to determine who the actual creditor is. When a creditor assigns an account to a third party agency the third party does not become the creditor. There are situations, however, where third parties purchase accounts from creditors and thereby become the creditors themselves. Creditor remedies can differ depending on the type of creditor, in particular if a debt is owed to the government.

Most clients do not seek advice until long after they have become overburdened with debts, however, getting help sooner rather than later will leave a client with more options available to them. Financial counselling may be of assistance to explore which options will work best.

NOTE: Many counsellors and trustees provide an initial consultation at no cost. Consumers should be aware that unless they are going to meet with a lawyer they need not pay for an initial consultation.

B. Debtors’ Assistance Referrals and Resources

The Credit Counselling Society is a non-profit organization that assists people who are experiencing difficulties with debts. They provide free and confidential counselling with highly trained counsellors. They can answer questions over the phone or by online chat, Monday – Saturday, with extended hours.

NOTE: Exercise caution when hiring a credit counsellor. There are a number of credit counselling agencies that collect fees from a debtor and do not contact the creditor until they have collected enough money to cover their own fees, thus leaving the debtor vulnerable to creditor action. Any corporation that collects and/or settles debt in BC should be registered with the Consumer Protection Agency (the Credit Counselling Society is a licensed organization). For information on your rights relating to debt collection, refer to the Debt Collection tab on the Consumer Protection Agency website.

Credit Counselling Society
330 - 435 Columbia Street	Telephone: 1-888-527-8999
New Westminster, B.C. V3L 5N8	Website: http://www.nomoredebts.org

The Financial Consumer Agency of Canada (“FCAC”) publishes a great deal of useful information on consumer’s rights as they relate to financial institutions, including information on opening personal banking accounts and guidelines for garnishing joint accounts: see http://www.fcac-acfc.gc.ca. Clients should be advised that credit unions in B.C. are governed by the provincial Financial Institutions Commission (“FICOM”). See http://www.fic.gov.bc.ca for further details.

The Public Legal Education and Information Network's “Clicklaw” web site has a helpful section titled “Debt”. Articles and information on various topics relating to consumer protection, debt and Small Claims Court in British Columbia can be found online at: http://www.clicklaw.bc.ca.

Information on how to deal with debt collectors and collection agencies and harassment can be found on the Clicklaw website or through Consumer Protection BC online at: http://www.consumerprotectionbc.ca.

The Office of the Superintendent of Bankruptcy in Canada, an agency of Industry Canada, assists debtors by providing them with many useful online resources such as “Dealing with Debt: A Consumer’s Guide” and “Debtor’s Frequently Asked Questions”. A full directory of licensed trustees in bankruptcy is available on their website: http://www.ic.gc.ca/eic/site/bsf-osb.nsf/intro. A licensed trustee in bankruptcy will provide a free confidential assessment of your financial affairs and advise you of the merits and consequences of filing a consumer proposal or bankruptcy.

For further information the Office of the Superintendent of Bankruptcy can be contacted at:

Office of the Superintendent of Bankruptcy
2000 - 300 West Georgia Street	Telephone: (877) 376-9902
Vancouver, B.C. V6B 6E1	Fax: (604) 666-4610
Website: http://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/home

C. Communicating with Creditors when Unable to Make Contractual Payments

NOTE: Before communicating with creditors, clients should be aware of the consequences of acknowledging a debt as a result of the Limitation Act SBC 2012 c 13. Under the recently revised Act, for debts last acknowledged from June 1, 2013 onwards, after two years since the last acknowledgement of a debt by the debtor, a creditor has no legal recourse for pursuing the unpaid debt. Therefore, by instructing a client to acknowledge a debt, even implicitly, a clinician will create a renewed two year time frame for the creditor to initiate legal action against the debtor. See note above, at the start of Section III, for further information.

NOTE: Clients should also be aware that if a judgement has been rendered against them it can be enforced for 10 years after the date of judgement (s 7). Refer to the Limitation Act for exceptions to this rule (s 23).

Depending on a consumer’s circumstances, they may need to contact their creditors to ask for assistance in getting through financially difficult times. Most people truly want to honour their commitments; however, they may not be able to do so at this time. If someone needs help with determining what their budget is and if they have surplus income to offer their creditors a reduced payment, the Credit Counselling Society is able to help consumers at no cost: 1-888-527-8999.

If the client has enough surplus income in their budget to repay their debt, they may wish to contact their creditors in writing and offer reduced payments until they are in a position to make contractual payments again. This is not a legal arrangement. A sample letter requesting reduced payments can be found on CCS’s website at http://www.nomoredebts.org/debt-help/dealing-with-creditors/debt-letters.html.

The steps involved in this reduced payment are:

1. determine the amount(s) owed and to whom (verify with the creditors rather than relying on the client);
2. determine how much money is available to pay to creditors, keeping the basic standard of living in mind;
3. consider if the client has assets, bank accounts or investments at risk;
4. consider the nature of the debt and if someone else would be impacted if the client is unable to make full payment, e.g. a joint credit card;
5. work out a payment plan for the creditors on a pro rata basis;
6. write the creditor a short letter outlining your situation and providing proof of reduced financial capacity, e.g. EI stub;
7. send or fax the above letter with supporting documentation and retain proof of the creditor receiving said letter (e.g. fax transmission report), retain a copy for your file;
8. update creditor periodically, e.g. if client’s situation stays the same or improves and if they’re able to resume contractual payments.

NOTE: Contact the Credit Counselling Society for free help with this process if needed. The creditors may feel the reduced payments are not acceptable, but would likely not pursue alternative legal action if this is all the client can afford at this time. Communication with the creditors is vital, especially if a consumer has no ability make payments at this time.

D. Debt Consolidation and Refinancing

Creditors will often offer refinancing or debt consolidation as the solution to the debtor’s financial problem. The interest rate may be higher for the consolidation. Terms and conditions will determine total interest paid and the payment period. If making payments in the first place is the problem, consolidation loans may not be the solution. All creditors should be treated on a pro rata basis; if the consolidation only satisfies a particular creditor, the debtor should ensure they are at least able to meet the minimum payments owing to all other creditors. E.V oluntary Debt Repayment Programs When someone has some ability to repay their debts, but is unable to meet the minimum payment requirements of their creditors, contact the Credit Counselling Society for help determining if the Debt Management Program (DMP) at the Society might be an option. This is an agreement between a client, to make set, reduced monthly payments, and their creditors, who in return agree to accept reduced payments and who often suspend or reduce ongoing interest charges. A client agrees not to incur further debt while on the program. If a client defaults from the program, creditors may proceed with any and all remedies available to them. The client should contact the Credit Counselling Society for more information at 1-888-527-8999. NOTE: Though non-profit, the Credit Counselling Society does charge a small fee to administrate the Debt Management Program (DMP). While counselling is free, CCS charges a one time setup fee of $75 upon entering the DMP. Once a client has entered into the program and begins making payments, CCS charges 10% of a client’ s deposit to a maximum of $75 per month.CCS will consider reducing or