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TORONTO — For anyone facing spiralling debt and a falling credit rating, a debt relief consultant's picture-perfect solution could bring a glimmer of hope. But experts say if their promises seem too good to be true, they probably are.

"Anyone who makes a promise that they can eliminate your debt or boost your credit score is making pie-in-the-sky promises because it's just not a possibility to do it," said Brandon Smith, a licensed insolvency trustee with Ira Smith Trustee & Receiver Inc. in Vaughan, Ont.

Smith, who has been in the business for almost two decades, said some debt relief consultants are misleading financially strained consumers with rosy pitches about debt relief programs and charging them for services they aren't not qualified to carry out. 

The Office of the Superintendent of Bankruptcy (OSB), a federal agency which administers the Bankruptcy and Insolvency Act, issued a consumer alert last month for debt relief scams targeting indebted consumers.

"Some unlicensed debt advisory firms charge hundreds or even thousands of dollars in unnecessary fees for services they are not licensed to provide and often misrepresent the service they can offer," the Nov. 14 alert said.

Unrealistic promises or pressure to make quick decisions, demanding fees upfront, charging referral fees for meeting insolvency trustees and asking to cut communications with creditors are a few of the signs of a debt relief scam, according to the federal agency.

Stacy Yanchuk Oleksy, CEO of the non-profit Credit Counselling Canada echoed one of those red flags in particular — debt consultants that charge money for what should be a free service.

"Any consumer can walk into a licensed insolvency trustee's office for free counselling and if they're insolvent, they can file their paperwork and pay their dues," she said. 

"(Consumers) don't have to pay to be referred to an insolvency trustee." 

A licensed insolvency trustee, which is regulated under the OSB, can conduct a government-regulated assessment of a debtor's financial health before advising on insolvency or bankruptcy. A debt consultant is not necessarily qualified to do so.

Oleksy said for-profit debt consultants have created a go-between for services that don't require any. It is happening "because there's money to be made."

Still, a debt consultant is not doing anything illegal, said Oleksy. "It's just completely unnecessary."

A debt consultant could offer a more optimistic look at debt relief solutions, review the client's financial situation and eventually turn the paperwork over to a licensed insolvency trustee — one that accepts such referrals, she said. 

Consumers will then be asked to pay an upfront fee for the referral. The referred trustee will repeat the assessment which may or may not result in insolvency. "Now, that same consumer is going to pay additional fees for insolvency required by law," Oleksy added.

She recounted an example when a client had paid almost $6,000 for counselling, only to be later referred to an insolvency trustee. The trustee's initial visit was free of charge. 

Sushil Talwar, a debt relief consultant with Goodbye Problems in Mississauga, Ont., said his job as a counsellor is important.

"I'm like an interpreter for (debtors)," he said, explaining how his job is to explain difficult terminologies like bankruptcy proposal and credit repair in layman's terms. 

Talwar said he meets his clients and helps them put together a file — taking about six months — which then gets sent to a trustee. 

He said he doesn't have a certificate that allows him to work independently but cited his experience and trust in the industry.

Oleksy said the gap in financial literacy, lack of stricter regulations and stigma are why people get trapped with middlemen.

"We never talk about our paycheques and we certainly don't talk about our debt loads because there's so much shame and embarrassment attached to money," she said.

There's a reason why a consumer takes the first life raft that appears — often online ads with lofty promises, she said.

Consultants can also delay the process of getting help, said André Bolduc, senior vice-president with BDO Debt Solutions in Ottawa. 

"When you go through a third party, you prolong the process, there's no immediate relief or clarity," he said, creating additional stress for people already dealing with a tough situation.

"The big B-Word — bankruptcy — it is scary for a lot of people," said Bolduc, also a licensed insolvency trustee. "Unfortunately, people associate talking to a licensed insolvency trustee with bankruptcy." 

There's a common misunderstanding that meeting an insolvency trustee is an automatic pathway to bankruptcy.

"While it is true that once a debtor files a proposal or bankruptcy, we do become the stakeholder for the creditors," said Smith, "at the outset, we are their advisers." 

He suggested avoiding for-profit debt relief consultants who suggest not speaking to creditors or not paying dues to them. 

Smith said there are legitimate non-profit credit counselling agencies, including Credit Counselling Canada, who help people with issues like budgeting and assist in setting up a plan to pay creditors — something people can consider if they're not quite on the brink of insolvency or bankruptcy.

Consumers can also check the official website of the Office of the Superintendent of Bankruptcy to search for a licensed insolvency trustee.

If someone lost money to a debt relief consultant, they should file a complaint with consumer protection for unfair advertising or not fulfilling their promises, Oleksy said.

Other options include reporting it to the Better Business Bureau, a local consumer affairs office or the Competition Bureau. 

This report by The Canadian Press was first published Dec. 5, 2023.

Ritika Dubey, The Canadian Press