Filing Bankruptcy to Avoid a Judgment or Lawsuit in Canada
There are times when a person is unable to clear off his debts by the due date.
In such cases, the creditor may file a lawsuit in court to get the money owed back via certain legal methods like garnishment against wages, seizure and sale of property, or freezing of bank account.
These methods of recouping money owed can financially strain your life and may even have serious repercussions.
Luckily, the law also gives you an option to avoid all this trouble by filing for bankruptcy—a legal way out of the debt maze.
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What can the creditor do if I do not pay my debt in time?
If you do not pay your debt and ignore all the payment notices you receive, the creditor may decide to file a lawsuit against you in court to get a judgment issued.
A judgment is a confirmation of debt owed, which is granted by the court after a statement of claim goes unopposed or is opposed unsuccessfully by the debtor.
Once the judgment is granted, your creditor can employ legal methods for churning out money from you.
These legal methods can eat up on your earnings regularly, risk your property possession, and hurt your financial standing in the long term.
What legal modes can the creditor use to get his money back?
Within the legal framework, your creditor can use any of the following methods to get his money back:
- The creditor can apply for garnishment against your earnings at your workplace, meaning a portion of the wages will be used for settling your debts.However, the garnishment doesn’t apply on insurance money, any kind of pension, and social assistance provided by the state.
- If the creditor knows where you deposit your money, he can collect the debt money from your bank account and also freeze it until all of your debt is paid for.You can not withdraw or transfer any amount from your account as long as your account is frozen, further piling financial pressure on you.
If your creditor is your bank, it can use its “right of offset” to take money from your account without any explicit consent.
It can even seize future deposits you make as you continue to use your account.
This goes on until your debt is settled with the bank.
- In the worst-case scenario, all your property and assets can be legally seized and sold off by the creditor to settle the debt amount.This is most likely when a lien has been placed on your property by the person you owe.
Unfortunately, if a lien has been placed, a bankruptcy filing can not stop the creditor from selling your assets.
How do I file for bankruptcy? How can it save me from the trouble?
When you are certain you would not be able to pay your debts in time, it is wise to file for bankruptcy (or consumer proposal) to avoid a judgment or lawsuit.
You can file a consumer proposal even after a judgment has been issued against you by the creditor.
Filing for bankruptcy stays all the related legal proceedings against you.
It also puts a halt on any ongoing garnishment against your paychecks.
If your bank account was frozen for collecting debt, it can be reverted to normal by filing for bankruptcy—unless your creditor is your bank itself.
Filing for bankruptcy does not work for secured debts where a collateral is involved, debts related to fraud, debts to court, debts related to child support and alimony, and student debts which are less than 7 years old.
If for any of these debts, garnishment or any other legal methods have been started by the creditor, they can not be stopped.
For all the eligible forms of debt, it is a safe practice to consult a licensed trustee and file for bankruptcy early if you are unable to see yourself fulfilling your debt obligations within the given time.
This not only prevents your creditors from filing a lawsuit and getting a judgment issued against you but also saves you a lot of time, effort, and peace of mind that you would otherwise spend tackling garnishment orders, frozen accounts, etc.
The protection offered by consumer proposal saves you from enduring a financially precarious period and, as a result, from slipping into more debt.
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?