What Can Creditors Do if I Can’t Pay?
What Powers Do Creditors in Canada Have?
If you’re struggling to manage your debts, there’s no doubt you’ll be feeling stressed and worried about your situation.
In fact, ‘what can creditors do if I can’t pay?’, is one of the most common questions regarding debt management.
Many people assume that they’re the only person having difficulties with repaying outstanding debts, but this simply isn’t the case.
More than half of Canadians have considerable non-mortgage debt and a substantial number of them have trouble making repayments.
If you fall into this category, it’s important to know what action creditors could take.
In most cases, creditors can choose to take the following action if you’re unable or unwilling to pay a debt:
1. Make a note on your credit file
Every instance of credit you have is shown on your credit file, along with whether you’ve made regular repayments in accordance with your contract.
Late payments and missed payments are recorded on your credit file and usually affect your credit score.
By ignoring debt problems and failing to make repayments, you’re going to damage your credit history and make it harder to obtain credit in the future.
2. Increase your interest rates
Depending on the type of debt you have, you may find that the creditor increases your interest rate if you fall behind with payments.
Check the terms and conditions of a credit card agreement and you’ll usually find they contain this type of clause.
When interest rates increase substantially, it means the amount you owe will soar rapidly.
3. Take money from your bank account
In some cases, creditors may be able to help themselves to money you have in your bank account in order to recoup the money that you owe them.
However, not every creditor is able to do this without express legal authority.
Government-related debts, such as student loans, can be taken from your taxes, which amounts to direct collection.
Alternatively, if you have a bank account and a form of credit from the same provider, they could take money from the account to make the repayments that are owed.
If you have an account and credit card with a high street bank, for example, this is one way they could recover their funds.
4. Engage a collections agency
If you fail to respond to the creditor’s attempts to contact you, they may choose to engage a collections agency instead.
In some cases, the collections agency will operate on behalf of the creditor but, in others, the creditor will sell the debt to the agency.
If a debt has been sold, it means you now owe the agency the outstanding debt.
There may be additional charges and administration fees added too.
5. Obtain a court order
If a debt remains unpaid, the creditor could instigate legal proceedings and obtain a court order against you.
The severity of the order will depend on what the creditor asks for and what a judge deems appropriate.
They may ask for your wages to be garnished so that a specific amount of your income goes directly to them, for example, or they may ask to seize your assets in lieu of repayments.
Stop Creditor Action Against You
Although the above examples sound harsh, they don’t all happen at once.
In the vast majority of cases, it will take weeks or months before a court order is issued.
During this time, you are free to contact the creditor and explain your situation to them.
Providing you can offer a reasonable explanation as to why you can’t make repayments and offer an appropriate alternative repayment plan, there’s a good chance your creditor will accept your proposal.
Alternatively, you may choose to engage debt management solutions in order to prevent further action from being taken against you.
If you file a consumer proposal or bankruptcy, for example, it will prevent your exempt assets from being seized and stop creditors from having your wages garnished.
What’s more, a formal debt management solution, such as a bankruptcy, ensures that your debts will be fully discharged.
While a consumer proposal means you will need to repay some of the debts, you’ll typically pay far less than you owe and be able to keep your assets too.
While there are plenty of actions creditors can take when a debtor fails to pay, there are a wide range of debt management solutions available to you.
By taking action swiftly, you can minimize the risk of further action being taken and resolve your financial situation once and for all.