Are Your Old Debts Back to Haunt You?
Ignoring a problem is something that’s often much easier to do than you might think.
When there don’t appear to be any immediate consequences, you can ignore an issue until it starts to get worse.
Sometimes you might not even be ignoring a problem on purpose – you just forget about it until something reminds you that it’s still there.
This is even something that can happen with debts.
You bury your head in the sand or choose to dismiss a debt, even when you know that you need to pay it.
Perhaps if you get incredibly lucky, a creditor might just forget about you.
However, it’s more likely that your debts are not going to go away, even if you wish they would.
If your old debts have come back to haunt you, with creditors and debt collectors trying to contact you, you might be scrambling to find a way to make them go away again.
Or maybe you haven’t heard from anyone in a while, but you know your debts are still there, and you want to deal with them before they make themselves known again.
If your debts are weighing on your mind or causing you stress, you need to know what you can do about them and what happens if you ignore them.
The Statute of Limitations
One thing to keep in mind is the statute of limitations.
This legislation prevents some unsecured creditors from taking action to collect on your debts and also prevents them from using collectors on their behalf.
Creditors can’t take court action against debtors after a certain amount of time, which could mean you can effectively forget about debt after this period.
The period varies depending on the province, so it’s important to check what the rules are for your location.
This doesn’t apply to some types of debt, such as student loans or child support.
However, even with this legislation in place, it doesn’t mean that ignoring your debts is a good idea.
In fact, there are several excellent reasons not to just try and pretend that they aren’t there.
To begin with, you can’t guarantee that creditors won’t try to take court action before the statute of limitations has run out.
Negative Affect on Your Credit
There are various things that can damage your credit report, and not paying your debts is certainly one of them.
If you don’t pay your debts, you can quickly start to see the effect on your credit.
In fact, as soon as you start missing payments, it will damage your credit score.
If you want to take out credit in the future or even if you want to do other things that require a good credit report, you could find yourself struggling.
A debt that’s past-due and remains unpaid could remain on your credit report for around six or seven years.
Even once you have paid what you owe, it could still make lenders wary of extending credit to you.
This might mean that you’re unable to get a mortgage or even to get a new credit card.
Creditors Want Their Money Back
Even when creditors are unable to take court action to get you to pay up, there are still plenty of things that they might do to try and collect on your debt.
Firstly, they can contact you in other ways.
Phone calls and letters from creditors can be extremely stressful, especially when they’re calling from unknown numbers or sending increasingly urgent letters.
They might even call family and friends if you provided their contact information as references, and they might try to get in touch with you at work too.
Owing a debt that you feel unable to pay can cause a lot of stress.
Creditors are determined to get you to pay, and you might be tempted to try and ignore them for as long as possible.
But ignoring them isn’t going to make your debt go away, and it won’t make them stop contacting you, either.
All the while, your debt will also be collecting interest and penalties, while affecting your credit report at the same time.
Ignoring your debts is only going to make the situation worse, rather than resolving it.
What to Do – Debt Solutions
If ignoring your debt isn’t going to work, what should you be doing instead?
There’s no need to keep burying your head in the sand when there are various debt solutions that can help you.
Firstly, you can try to resolve your debt by getting your finances organised.
Maybe you are able to pay what you owe if you just create yourself a budget and a plan for paying everything off.
It’s a good idea to actually answer those phone calls from creditors and try to negotiate a payment plan or even a reduction in payment.
If you have multiple debts, you could consider consolidating them to make them easier to pay.
However, if you’re struggling to pay your debts, you can also get professional help.
A credit counsellor can help you with budgeting and can also offer you options like a debt management plan.
A debt management plan will help you to pay what you owe and might allow you to reduce your debt too.
You can also speak to a Licensed Insolvency Trustee (LIT).
An LIT is qualified to offer financial advice and to carry out the process of filing bankruptcy and consumer proposals.
A consumer proposal or bankruptcy could be the right option for you if you want to eliminate your debts.
They allow you to have your debt discharged so that you can start over, although the bankruptcy or proposal will remain on your credit report for a number of years.
If you choose bankruptcy, you could be discharged from your debts in as little as nine months for a first bankruptcy.
A trustee can help you to decide which debt relief option might work for you.
Find one on the Bankruptcy Canada website, and learn more about both bankruptcy and consumer proposals.