What Happens When You Can’t Pay Your Debt?

It’s easy for debt to spiral out of control.

Whether you lose control of your spending or circumstances lead you into hardship, your debt can soon get out of control, leaving you unable to afford it.

Not everyone knows where to get help with debt, or what options are available.

If you’re worried that your debts are becoming unaffordable or you’re struggling to pay your bills, find out what happens when you can’t pay your debt and the options that are available to you below.

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What can happen when you don’t pay your debt?

If, for any reason, you fail to make payments on your debts, your creditors will start to impose penalties, as outlined in the terms and conditions you agreed to when taking out the credit.

This could start with a missed or late payment fee initially, and they could also choose to mark a default notice on your credit record.

Some of the other consequences of not paying your debts include:


  • A rise in your interest rate. Missing payments can cancel interest-free periods while also increasing the interest on your account. The more interest you pay, the quicker your debts will add up.
  • Contact from collection agents. If you continue to miss payments, you may be contacted by in-house collection agents. If things continue, your debt could be sold onto external collection agents, who will continue to get in touch. The volume of calls and letters can be overwhelming, adding to the stress of benign in debt.
  • Collections from your bank account. If your borrowing is connected to your bank (either because you borrowed directly from the bank or from an affiliate of the bank), then under the “right of offset”, your bank could take payments directly from your account.
  • Take legal action. When you take out credit, you sign a contract with your creditors promising to make repayments on time. There are different legal actions your creditors can take if you miss your payments, including:
  • Wage garnishment, which grants the creditor permission to take money from your account;
  • Seize your assets, by placing a lien on your home or seizing your vehicle;
  • Ask for an arrest warrant if you fail to show up to court. This usually only happens in rare cases.


What should you do when faced with legal action?

Legal action is one of the most serious consequences of debt, and is something that can cause a lot of stress and anxiety for individuals.

It can take a long time for creditors to take legal action for unpaid debts, so the sooner you start making repayments, the easier it will be to avoid having legal action taken against you.

If you’ve got to the point where legal action would be the next step from your creditors, it’s important to be aware of the following:


  • When you receive notice for legal action, get in touch with a Licensed Insolvency Trustee, who will be able to provide you with advice and possibly stop the court proceedings.
  • If your debts are owed to the Canada Revenue Agency, action can be taken against you quickly, and without the need to go to court. This could include freezing your bank accounts, or you could be put under a wage garnishment. In this case, you’ll need to contact a Licensed Insolvency Trustee to halt these proceedings.
  • Be wary of online scams claiming to be the Canada Revenue Agency. The CRA cannot deport you nor threaten jail time, so if you’re receiving communications saying something to this effect, you could be looking at a scam. Always verify your correspondence and don’t hand over money to sources you don’t trust. If in doubt, search for the number and speak to someone.


What should you do if you can’t pay your debt?

If you’ve reached the point where you can no longer pay your debt, then it’s important that you get help for the problem as soon as possible.

Don’t ignore it

As tempting as it is to ignore your problems, things will only get worse, not better.

Even though you’re unable to make the required payments, you need to keep an eye on your accounts and statements and make sure you open any correspondence to ensure you aren’t caught out when creditors take action against you.

Find out what your options are

Some creditors will try to offer different settlement agreements, and other companies could try and tempt you with a high-interest loan to try and clear your debts.

Understand where you stand legally by contacting a Licensed Insolvency Trustee to discuss your options.

Only a Licensed Insolvency Trustee can help you with debt and deal with your creditors on your behalf.

Even if you only get in touch for advice, it’s better to speak to a licensed professional than take a chance with an unfamiliar source.

Get professional advice to help you deal with your debts

A Licensed Insolvency Trustee is there to help you manage your debts and provide solutions to help you clear them.

With no judgement, they’ll assess your circumstances and be able to provide you with advice and help you decide on the most appropriate course of action.

Your Licensed Insolvency Trustee will provide you with a free consultation.

There could be multiple solutions to dealing with your debts, but the decision on how to proceed will ultimately be yours.

Should you decide to file for a consumer proposal or bankruptcy, they’ll then be able to action this process on your behalf.

Debt is something that affects many people, and it can be difficult to see a way out of it.

Take the first step by contacting Bankruptcy Canada on (877) 879-4770, 24 hours a day, 7 days a week.

Picking up the phone is a difficult first step, but it could soon lead to you becoming debt-free for good.

Information on Consumer Proposals

Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?

Canadian Bankruptcies

How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
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?

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