Understanding the Right of Offset
The Right of Offset is a legal provision that permits financial institutions to reimburse themselves from a debtor’s account for a debt owed to them, such as credit card debt or a personal loan. This right is designed to ‘offset’ the money owed to the institution, allowing them to recover their dues without requiring a court order or the debtor’s permission.
How Does the Right of Offset Work?
The right of offset enables banks to seize money from your checking, savings, or investment accounts without prior notice or your approval. This can be done up to the total amount of debt owed, and the bank doesn’t need to leave any money in your account for you to access.
Note: The bank can seize any additional funds deposited into your account until the debt is fully paid.
This can pose a significant challenge for many debtors as they may find themselves without funds for daily expenses, including bills or groceries. If the bank’s actions result in insufficient funds to cover bills or direct debits, the debtor may also be charged a non-sufficient funds fee.
Does the Right of Offset Apply to Joint Accounts?
The right of offset can be applied in various scenarios, including:
- If you owe a debt alone, or if an account is in your name;
- If you owe a debt alone, but you have a joint account with a spouse;
- If you owe the debt with someone else, but the account is in your name;
- If you owe a joint debt and have a joint account with your spouse.
However, if your spouse owes a debt on their own, but the account is in your name only, the right of offset does not apply.
Who Can Exercise the Right of Offset?
The right of offset is not limited to banks. Other parties such as the Canada Revenue Agency (CRA) can also exercise this right. However, third-party creditors or debt collectors require a court order to seize money from your bank account.
The CRA has unique powers that most creditors do not. They can freeze your bank account without a court order and have a statutory right of offset. They can hold money due to you from the government to repay your debts, including tax refunds and HST credits.
How to Prevent the Right of Offset?
If a bank or the CRA is planning to exercise their right of offset against you, it’s likely a sign of financial difficulty. Here are some common ways to avoid the right of offset:
- Stay up-to-date with your debt payments;
- Regularly review your bank statements to ensure you have enough funds to cover any pre-authorized payments;
- Switch your bank account to a different bank where you don’t owe any debt;
- Consider a form of debt relief to address your underlying financial issues.
Debt Relief Options
If your financial situation is dire, consider these options to help get back on track:
A debt management plan can help some individuals repay all of their debts. This plan is often provided by a credit counselling agency that works with you to create a repayment plan spread across five years.
A consumer proposal is a legal form of debt settlement reinforced by the Canadian government via the Bankruptcy and Insolvency Act. It can reduce your debt by up to 80% while allowing you to keep your assets.
Bankruptcy is the legal process of assigning any non-exempt assets you may have over to a Licensed Insolvency Trustee in exchange for the clearance of your debts. It prevents creditors from contacting you or pursuing legal action against you.
Conclusion
The Right of Offset is a powerful tool for financial institutions to recover their dues. However, by staying informed about your rights and taking proactive steps, you can navigate this potentially stressful situation. If you want to learn more about the right of offset, consider booking a free consultation with a licensed financial advisor.
Remember, when it comes to managing your finances, knowledge is power. Stay informed, stay empowered.
Contact us today to learn more about how we can help you navigate your financial future. You owe it to yourself.
