How should you deal with creditors and debt collectors that are calling? Understand your rights and the risks of dealing with debt collectors and collection calls.
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Once you are unable to keep up with your payments you will start to receive calls from your creditors. They will start with automated messages reminding you that payments have been missed, then it will escalate to the bank’s collection department calling and may in time be handed over to third-party collections.
If an agreement cannot be reached, then the creditor may start legal action.
Depending on your situation, whether it’s a temporary issue or a long term financial crisis that requires more drastic measures, there are a number of options to try:
If you communicate with your creditors, explaining the situation and when you may be able to make a payment, they will likely work with you initially.
If they don’t know what’s going on and you ignore their calls and letters, that’s when they will have no choice but to escalate the file to collections and potentially legal depending on the size of the debt.
Be open and tell the creditor why you have been unable to make the payments.
Have a plan to present to the creditors. If you think you can pay off the debt but just need more time or if you need a lower payment, create a budget showing what would be manageable before you contact them.
Don’t promise a payment you know you can’t make. This will lose their trust and make it much harder to agree on a future payment plan if you fail to meet the first plan.
If your proposed repayment plan is reasonable, the creditors will usually work with you versus the more drastic alternatives you may be forced to make such as bankruptcy.
At the end of the day, the creditors main objective is to receive as much of the debt as they can, in the shortest time period they can.
Remember, the creditor will always take into consideration that if they reject your payment plan and request payment that is unreasonable based on your income, you may be forced to file for bankruptcy or a consumer proposal, which ends with them receiving a much lower return than had they worked with you.
It can be very stressful when collection agencies call. They can be very abrupt and aggressive in their attempt to collect the debt. They have been known to make threats that they can’t legally follow through on in order to scare you into paying the debt.
Keep a record of what was agreed, who you spoke to and when, and ask for confirmation in writing.
The first thing a collection agency must do under the Collection and Debt Settlement Services Act is send in writing a letter including details of the creditor they are collecting for, the amount you owe and the full details of the collection agency. After sending it, the agency must wait six days before contacting you.
If you are unable to pay off the debt in full at this time but believe you can make a monthly payment or you have a settlement payment to offer, you can attempt to negotiate different payment terms with the collection agency.
When determining what you can pay off, or even if you can pay off the debt, remember to look at all of your debt. It’s tempting to make an arrangement with the creditor or collection agency that is calling the most, or who is the most threatening, but it’s only a matter of time before all the creditors are calling more and increasing the pressure for you to pay.
The collection agent only cares about the collection of the debt to their specific creditor. They don’t care if you can’t pay other creditors.
If you can manage your debt and just need new payment terms, here are the key points to follow when agreeing on a new payment arrangement.
Remember, if you have access to funds to offer, the creditors will likely take a lower offer for a one time payment to close the account.
Regardless of whether you are contacted by the original creditor or a collection agency, it is very important that you:
Request that whatever is agreed is confirmed by them in writing and don’t make any agreed payments until this is received.
Collection agents can be ruthless and if it you don’t get it in writing, they may agree to a settlement or a payment plan, ask for a large payment to show your commitment to the plan, and then not honor the payment plan agreed, continuing to harass you for the remaining payment.
Always keep proof of the payments made and, once the final payment is made, request confirmation that the debt is paid in full. This may be required later if your credit bureau isn’t updated correctly.
Being creditor proof means the creditors can take no legal action to seize or lien your assets and your income cannot be garnished by a creditor.
Certain types of income cannot be garnished and certain assets are exempt from seizure. It may also be that the statute of limitations has passed on a creditor being able to take legal action.
Being creditor proof doesn’t mean the creditors and debt collectors will stop calling or that it won’t continue to have a negative impact on your credit report, it just means that the creditor cannot take legal action to collect the debts.
You cannot go to jail for not paying your debts.
Your creditors can take you to court to attempt to recover what’s owed to them, but it is a civil proceeding.
Your wages may be garnished and your assets seized, but you cannot be sent to jail.
Secured assets (homes, cars, boats):
If you don’t make your payments to a secured creditor the security you have pledged to get the credit is now in danger.
The creditor will need to provide notice before actually taking the asset and this will either require you to catch up on any payments that you are behind on or payout the debt in full.
If you are unable to pay the debt or make payment arrangements with the creditor during this period they have the right to take the property and sell it.
They will then apply any of the proceeds less selling and legal costs to the debt and may have the right to continue legal action for any shortfall if the sale proceeds did not pay the debt in full.
Unsecured assets (pay day loans, consumer goods):
Unsecured creditors must follow a different process as they did not take any security against the credit advanced. They will first call and try and work with you directly on paying the debt.
This will start amicably and then get more aggressive as more time passes and the risk of the creditor not getting paid increases.
Depending on the amount owed, they will then hand it over to an internal or external collection agency or take legal action. If they sue you and are able to obtain a court judgment against you, they can then seize or lien property you own, such as a home or car, and can also garnish wages.
Wage garnishment:
If the creditor obtains a wage garnishment they are legally required to send a notice to your employer to deduct money from your wages directly.
There are maximum amounts a creditor can garnish based on your net income and it varies by province. Once a wage garnishment is in place it is usually very difficult to agree to new payment terms with the creditor in turn for them lifting the garnish, although filing a bankruptcy or proposal under the Bankruptcy Act will lift most garnishes
Every province has its own rules but generally the process you can expect is for the creditor to file a lawsuit and obtain a judgement from court.
This can happen either by you not responding to the law suit and automatic judgment being awarded or the creditor being successful at trial. They will then make an application to the court for a garnishment order which will then be severed to your employer who is obligated to comply.
A garnishment can extend beyond just your employer and can be sent to your bank to seize funds in accounts you have. If you are self-employed it can be used to garnish account receivables. In most provinces, the following is exempt from garnishment: employment insurance, CPP, OAS, forms of social assistance.
Legal action:
A creditor or collection agency will have the option to take you to court and sue you to collect unpaid debt. However, depending on how old the debt is and when they were last paid, they may not be able to take legal action.
Also, practically it may not be worth the legal expense of taking you to court if the debt is small or if they believe that even if they are successful in court, that the debt is still uncollectable because of your financial situation.
If there are no assets to a lien, the most common outcome a creditor is looking to obtain from legal action is to garnish wages.
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