What Debt Problems Can A Licensed Insolvency Trustee Assist With?

Consequences You Should Be Aware Of

Did you know that Canadian households had approximately $2.5 trillion in outstanding debt one year into the pandemic? With unforeseen circumstances like the pandemic, getting laid off, or business losses, more people in Canada were considering bankruptcy in 2020.

If you’re facing overwhelming debt or have creditors knocking down your door, you have two choices – to consider filing an assignment in bankruptcy or filing a consumer proposal. This is where the services of a Licensed Insolvency Trustee (LIT) come in. Keep reading if you want to learn more about the role of a LIT or the different options available to you.

Consequences for Not Paying Debts

If you’re facing debts you are unable to pay, it can be stressful and affect all aspects of your life. You’re probably wondering what the immediate impact of not paying your debts on time can be.

Credit Reporting

Your credit score is an important asset in your life. It provides insight to lenders on the amount of risk you represent to them compared to other borrowers. A credit score determines more than whether or not you can get a loan or credit card, and what your interest rate may be.

For example, a credit score is the first thing most landlords check to see if they want to rent their property to you. Insurance companies may also use it to determine the premiums on your car and home insurance.

Credit scores range from 300 to 900 points. The higher the score, the lower the risk for lenders. If your credit score is around 700, you’ll be considered lower risk. Unfortunately, if you miss even a single debt payment, you can end up losing 100 points off your credit score. Without a good credit score, you might have trouble getting a car loan, a new job, or even be able to find a place to rent.

Late Penalties

If you don’t make your payments on time, you may incur late payment penalties. On a credit card, the penalties also would accumulate interest. This can add up pretty quickly.

You’ll also see an increase in your credit cards interest rates if you continue to miss payments. In the long term, these increases in the interest rates and penalties can end up costing you thousands of dollars extra. Lenders may also decide to reduce your credit limit or close the account altogether.

Remember to review all of your credit agreements. These will tell you exactly what late penalties the lender can charge.

Sending Your Account to a Collection Agency

If you owe money to a lender, they can either try collecting the amount due on their own, hire a debt collection agency on their behalf or sell your debt to a debt collection agency.

A debt collection agency specializes in collecting debt. You can start getting calls at home or at work, letters and emails, which can be stressful and difficult to deal with.

If your account is sent to a debt collection agency, a record of that will also show on your credit report. It will remain on your credit report for seven years from the date they last report on the account. This means that every time a lender or company checks your credit report, they’ll see the notice and the history of missed payments.

When Creditors Take Legal Action

If you continue to miss payments, a creditor can choose to take legal action. This really depends on how much you owe. A court proceeding can be expensive and time-consuming. In most cases, a creditor would rather settle than go through the expense.

Actions Creditors Can Take

A creditor can choose to bring a lawsuit. If they do so, they can get a judgment order and then garnish your wages to get back what you owe them.


A creditor has the right to take you to court and sue you for the debt owing. Once they do so, you’ll be notified. If you don’t file a defence, the creditor will be granted a default judgment.

Obtaining a Judgment Order

If your creditor is successful at trial, they will obtain a judgment order against you. This means that the court will order you to pay all or part of your debt, including costs.

Garnishing Your Wages

Once a court order is issued, the creditor can garnish your wages. This means that they can contact your employer who will be obligated to pay a portion of your wages directly to the creditor.

How to Avoid/Halt Legal Action From Creditors

You have a few options to halt legal action from creditors. One of them is to negotiate repayment terms directly with the creditor. Unfortunately, this can result in unfair terms and agreements.

Another option is to work with a LIT to file an assignment in bankruptcy or file a consumer proposal. According to the federal government, in 2019, 4.6 out of every 1,000 Canadians filed for insolvency, either by declaring bankruptcy or filing a consumer proposal.


You should only file an assignment in bankruptcy as a last resort. A LIT can assist you through your bankruptcy process by filing all the required documents and contacting the creditors on your behalf. Once the process begins, the calls from the creditors should stop. Upon filing, any garnishments being deducted from your wages must also stop. All contact would be through your LIT.

Remember that when you file for bankruptcy, the LIT will take possession of all your assets, other than necessities such as household goods, clothing, and tools of your trade. The LIT will then sell the assets to pay towards your creditors.

Consumer Proposal

If your debt is less than $250,000, a consumer proposal can be the solution to all your debt problems. In 2019, there were 137,178 insolvency filings, of which 60 percent were consumer proposals.

A consumer proposal can only be administered by a LIT. If you file a consumer proposal, you’ll work with your LIT to determine the repayment plan to offer to your creditors. Once approved by the creditors and the court, you would make the payments to your LIT who would divide the funds among your creditors. To learn more about a consumer proposal, contact a LIT to start the process.

Filing a consumer proposal means that you won’t have to declare bankruptcy. Once the consumer proposal is approved by the creditors and the court, as long as you complete the terms of the consumer proposal, you will be relieved of the remaining debt owed. Depending on the terms of your consumer proposal, you may also get to keep your house and other assets.  A consumer proposal also stops any wage garnishments and legal proceedings.

Get the Right Services for Your Needs

When you’re considering an assignment in bankruptcy, everything can seem overwhelming and out of control. Having a professional by your side can make all the difference.

A LIT will help provide solutions to your debt problems including helping you file a consumer proposal or an assignment in bankruptcy. Book your initial free consultation with Baker Tilly Ottawa Ltd., Licensed Insolvency Trustee with over 37 years of experience today!