What Type of Legal Action Can Creditors Take?

The pandemic of 2020 left many people desperate when it comes to their financial situation. Fortunately for many, during this time, many creditors ceased collection activities. This leniency has come to an end and the creditors are now starting to resume their various debt collection activities.

Keep reading to learn more about the various options creditors have in attempting to recover their funds.

Credit Reporting

A credit report is used to assess your ability to pay your debts. It is a document maintained by the two credit reporting companies in Canada – Equifax Canada and TransUnion Canada. Each of these companies compiles your credit report by receiving and summarizing credit information reported to them by banks, credit card companies and consumer finance businesses.

Creditors that report to the credit bureaus, rank your payment history. Any late or missed payments are reported, as a deterrent. Payment history and credit utilization are major factors in determining your credit score. Creditors use this reporting to the credit bureaus as an incentive for individuals to make their payments on time each month.

Sending Your Account to a Collection Agency

If a creditor sends your account to a collection agency, the goal is to put pressure on a debtor to make a payment. Collection agencies can be quite persistent in the frequent calls to debtors demanding payment.

Communicating with a collection agency about your debts is imperative. Explaining your situation is usually the better option than ignoring the letter. This may allow you to work out payment arrangements or make a settlement agreement with the collection agency.

Legal Action

The likelihood of a creditor taking you to Court is heavily dependent on the amount you owe to the creditor, your ability to pay based on an assessment of your assets and income and the estimated legal costs to do so.

When a creditor sues you, you’ll receive a Statement of Claim. A Statement of Claim is a document that informs you that you are being sued. It will tell you who is suing you, what you are being sued for, and what steps you are required to take. This is a provincial document, meaning the circumstances of a Statement of Claim may vary by which province you live in.

If you ignore a Statement of Claim, the Court will issue a default judgment against you, automatically taking the plaintiff’s side.

If you choose to fight the lawsuit and file a defense, the Court will decide the outcome based on the representations made.

If a judgment is issued against the debtor, the creditor may then enforce the judgment.

Garnishment Orders

Once a judgment is issued by the Court, it can be used to obtain a garnishment order. The garnishment order would then be served on your employer, or to the party, they are attempting to seize funds from. This means that a garnishment isn’t limited to your employer. They can also be served on your bank, or, for self-employed individuals, those who owe you funds. Parties who receive the garnishment order are legally bound to follow it.

How to Avoid/Halt Legal Action From Creditors

A Licensed Insolvency Trustee (“an LIT”) is the only professional who has the power to stop the creditors’ collection activities, including calls, letters, legal action, and garnishments, immediately, and without requiring an order from the Court.

Individuals who participate in our programs benefit from our LITs issuing a stay of proceedings to immediately cease all collection activities, so you immediately begin to experience financial relief. These programs include filing an assignment in bankruptcy or filing a consumer proposal.

Meet with an LIT

An LIT is a federally-regulated financial advisor who can help you with issues involving debt and creditors.

Consumer Proposal

You can file a consumer proposal to deal with your debt, which requires all debt-related legal action against you to cease. With a consumer proposal, an LIT works with you to come up with a compromise for the debt you owe. The LIT will send the consumer proposal to your creditors and will act as a third party and liaison between you and the creditors.

Often, the terms of the consumer proposal will allow you to pay off a reduced portion of your debt with affordable payments made over a set period of time.

Assignment in Bankruptcy

If you are completely unable to pay off any debt, you may file an assignment in bankruptcy. You will need to consult with an LIT before taking this step.

This process halts legal action against you and upon completion eliminates your debt, but it does not come without long-term costs. Ask an LIT if bankruptcy is the right option for you.

Conclusion

If you are in need of debt relief and are tired of hearing from creditors and having your wages garnished, it’s time to get professional help.

Depending on your financial situation, you may qualify for a consumer proposal or an assignment in bankruptcy.

For help with your specific debt situation and more information about your options, contact Baker Tilly Ottawa Ltd.