Can You Go to Jail for Not Paying Your Debts?
Going to Jail in Canada For Unpaid Debts
Let’s answer the big question here right up front: You don’t go to jail just because you default on a payment of some kind.
There were over 11,000 consumer bankruptcies filed in Canada in the first quarter of 2020 alone.
That would be a lot of arrests to make!
There are a lot of factors that play into debt, including the type of debt you’re under, or how you respond to creditors who expect their payments to be on time.
In some cases, yes, legal action can (and will) be taken.
But, no one is going to knock on your front door and arrest you because you’ve missed a credit card or student loan payment.
With that being said, there are some serious consequences to not paying your debts.
While jail time probably isn’t in your future, it’s important to know what you could be facing if you’re not making the payments you should.
What Happens if You Don’t Pay Your Debts?
If you haven’t been paying on your debts, creditors can file a judgment against you in small claims court.
If they do, you’ll have to attend a hearing.
Going to court can be an overwhelming and even scary experience for anyone if you haven’t been involved with the legal system before.
Your objective in small claims court is to defend yourself against the judgment the creditors are filing against you.
If the judge rules for the creditors, they will grant a judgment in their favor and you will have to pay the consequences.
What does that mean for you?
If a judge rules in the creditor’s favor, it’s likely that the creditor will ask the court to garnish your wages.
This will allow them to notify your employer and set up a plan to automatically remove a set amount of money from your paycheck that will go directly to your debts.
Wage garnishments vary by province.
For example, in British Columbia, creditors can garnish up to 30% of an employee’s wages.
If you don’t have a job, creditors can still take money directly from your bank account.
While wage garnishment is one of the most popular outcomes when creditors go to small claims court, there are other options.
In some cases, they may even be able to issue an execution order.
This would allow the creditors to seize some of your property.
Are There Any Exceptions?
There are two major exceptions to the process listed above.
The most serious one is fraud.
If you’ve committed fraud and you are found guilty in court, you could absolutely face jail time.
But, it would be for the crime of fraud, not for your unpaid debt.
If you are paying child support and you’re behind on your payments, you might also be in contempt of court.
The Family Responsibility Office has ways of ensuring payments are met in a timely manner, including garnishing wages or adding a note to your credit report.
If you are severely behind and show no effort to make payments, they may ask the judge to put you in jail.
Again, that isn’t necessarily because of your debt. Child support payments are different than traditional debt and the Family Responsibility Office handles them in their own way.
Getting Out of Debt to Avoid the Consequences
In short, you won’t be sent to jail just because you have a lot of debt.
Whether you’ve been able to pay any of it off or not, you won’t get arrested for the financial hole you’re in.
However, as you can see, there are several dangerous consequences to staying under that pile of debt, and it can be even harder to escape from it if your wages start getting garnished.
One of the best things you can do is to try to get out of debt as quickly as possible on your own.
Your debts won’t go away if you ignore them.
Taking action now can save you a lot of time, hassle, and money you may not have to spare.
If you’re not sure how to go about paying off your debts or you feel “stuck” and need some guidance, reach out to a Licensed Insolvency Trustee to learn more about what your options are for getting out of debt.