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Why to Beware of Bankruptcy Trustees

27 August 2013

For the past few days we’ve been looking at different ways you can deal with your debt, and all the various resources that will help you. Yesterday we also talked about how some of these resources, such as debt settlement companies, may not have your best interests at heart. But it’s not just debt settlement companies that can sometimes be more interested in their bottom line than they are their customers; and that’s why today we’ll take a closer look at bankruptcy trustees, and why you may want to wait before exploring this option.

Bankruptcy trustees deal in both bankruptcies and consumer proposals. These two options are the same in that an individual will significantly lower their debt by getting it cut down in a single blow, and they’ll be able to do it even if they don’t actually have the funds to pay off that debt. However, with a consumer proposal the individual is allowed to keep some of their assets, whereas with a bankruptcy they typically don’t get to keep any. On the flip side, a consumer proposal does cost the individual much more than a bankruptcy. It’s because of this fact that it’s unfortunate that bankruptcy trustees often suggest a consumer proposal before bankruptcy.

But what’s the reason for it?

Unlike debt settlement companies unfortunately, bankruptcy trustees don’t just work to represent the consumer; they also receive quite a bit of profit depending on the option the consumer takes. And when that option is a consumer proposal, the trustee makes much more profit than they would have had the consumer turned to bankruptcy. Because they make more profit from consumer proposals than they do bankruptcies, trustees are often quick to offer this profitable option, and sometimes will even push consumers into it when it’s not really the best avenue for them. And they’ll even suggest it when the consumer has no assets to protect and would be better off filing for bankruptcy. This only ends up costing the consumer more in the end.

Another reason to beware of bankruptcy trustees is because they are also very quick to suggest either a consumer proposal or filing for bankruptcy as the best option for anyone in debt. They don’t tell consumers that both of these options will have a huge negative impact on the consumer’s credit rating, or that they’ll most likely lose everything in the process – all just to start from scratch. At times they also often don’t tell consumers that both of these options should only be used as a last resort.

There is a certain freedom that comes from both filing for bankruptcy and filing a consumer proposal and being free of some, or even all, of your debt. However, both of these options can leave customers in a worse financial position than they were to begin with, and it’s important that customers know all of their options before they embark on either.

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