Frequently Asked Questions

In Canada there are four options available.

1. Debt settlement (also known as debt negotiation or debt arbitration).
2. Credit Counselling (payment program).
3. Debt Consolidation (one large loan).
4. Bankruptcy and Proposals.

Typically a creditor (credit card company, bank, private lender) will start with collection phone calls (from within their company collections department).  If they are not successful in obtaining payments (usually after about four to five months), then they can either send it to a third party debt collections company, sell the debt to a collections company or hire a lawyer.

When a debt is sent to a third party collections company, they will then start to call you.  If they are unable to collect the debt from you over a period of time (usually 6 months to 1 year), then it is either sent back to the original creditor (bank, credit card company, lender) or is recalled by the original creditor.  At that time it can be sent out to a second collections company and then even a third.

If your debt is sold to a collections company, then they will now own the debt and will attempt to collect it from you.  They may attempt to collect on the debt indefinitely.  They may also sue you, but it is not common, even though they often threaten people with this option.

If a creditor or collections company hires a lawyer, you should be notified and may be sent court documents.  You must respond or they will receive a default judgement.  The lawyer will likely want to find a resolution first (i.e. settlement, payment’s etc.).  Litigation is not a cost effective alternative for them if you do not have anything tangible for them to go after, or if they cannot prove that you owe the debt (original signed contract, a portion of the debt is in dispute).  There are options for you to consider, so access the resources available to you.  You can start by contacting a debt arbitrator, trustee, or other service provider that deals with creditors regularly.  Then contact a lawyer, legal aid or other community resource for advice.

• Ask if the company is a Canadian owned company.  Make sure that their head office is located in Canada.  Many companies claim to be Canadian when they are actually doing business across the boarder.  It is very difficult to hold a company accountable when they are not located in Canada.
• Ask how their fee is calculated.  When the program is finished, what is the total amount that you will have paid out?  If you are sending payments in monthly, you will want to know if your initial payments are going towards their fee first and if so when do the payments start applying to your principle debt.  Some companies will take your entire monthly payment and put it towards their fee months before any service is actually provided.
• Ask how their service will affect your credit report.  If you are paying the entire debt in full over time, what is the benefit if you end up with a damaged credit report?  Make sure that this program has clear benefits for you.  Make sure that you are considering the long term affects and not just the short term solution.
• Ask what happens if you decide to leave the program.  For example, if you first four payments go towards their fee and you decide later that this option is not meeting your needs; do you get your money back?  Do you get a portion of your money back?  If you do, make sure that you have it in writing.
• Ask if their debt program will affect your wife, husband, spouse, parent, child etc.  If you have a co-signer, or family member attached to your debt, they could be affected by entering a particular debt relief program.  Generally, if you are the only person attached to that debt, no one else will be included in resolving it.
• Ask if the creditors and banks fund their program.  If so, are they truly able to represent you fully?  You will also want to be clear as to how much of your personal information is shared with your credit card company, bank, etc.  What are their policies on confidentiality and who do they apply to?  Read the small print in the debt relief programs contract with you.

A creditor can decide to sue you if they think that there is something to go after.  Obviously it is not in their best interest to pay legal and court costs if they do not feel that they will recoup anything from you.  It is difficult to garnish wages as they are required to go back to court to garnish each individual cheque (generally).  This is costly and time consuming.  They are limited as to how much they can garnish and most courts will not allow them to cause any undue hardship to individuals who need to meet basic needs.  Depending on your province, it can be impossible for them to garnish a bank account; and in Canada it is almost impossible to force the sale of a primary residents.  A lean can be applied, but may be of no use to the credit if you do not have any intentions of selling.  This is in no way meant to be legal advice, but is often useful information as creditors often use litigation as a threat to make people follow their demands.

Collections companies will also threaten to litigate, and may also do so, but again it is rare and it is done when they are certain that it will result in them getting paid.  Collections companies cannot sue or threaten to sue unless they have purchased the debt from the credit card company, bank etc., or they have been given written authorization from the original credit grantor.  Both the creditor and the collector prefer to settle with you, receive payments, or find some other resolution.  They simply cannot afford to sue the thousands of individuals who have financial hardship (to confirm any of the above information, contact a lawyer or legal aid).

No!!  Do not simply tell them everything they ask.  They are not working for your benefit and have no interest in protecting you.  Debt collectors have been known to bully individuals into giving information.  You should consider recording their phone calls as they are held liable for lying or threatening while attempting to collect a debt.  You are not required to give your personal or financial information to a debt collector or creditor simply because they want it.  You should be very cautious as to what you tell them until you have received some sound advice from a Debt Arbitrator or other individual that  you feel is trust worthy.  Speak to more than one debt solution company or service provider.  There is legislation for every province that covers prohibited debt collection practices.  Make sure that you have a look at it, and know what your rights are.

The law states that you are to be considered separate entities and that one cannot be pursued for another’s debts.  Therefore, if a debt is in your name, then you alone are liable for it.  A creditor may pursue a joint asset and this should be confirmed with a lawyer.  There are some services such as bankruptcy that can include a spouse’s income.  Otherwise, if the debt is in your name, then you are the only one responsible for it.  Again, this is not legal advice and should be confirmed with a lawyer.

The legislation that covers prohibited debt collection practices in your province will also speak to this same issue.  Most provinces prohibit a debt collector or credit grantor from notifying or discussing your debt with a family member, employer etc.  If the debt is solely in your name, they are not allowed to discuss it with your spouse at all.

Each province has what is called a Statute of Limitations for debt collections.  In Ontario    and Alberta that statute of limitations is 2 years and in British Columbia it is 6 years.  This is the time

frame that is started from the date that you last made a payment or acknowledged the debt.  If you do not make a payment or acknowledge the debt for this period of time, and the creditor does not pursue you legally, then they cannot sue you after this time has passed.  This is the only window of time that they can go after you legally.  Some creditors will try and sue anyhow, but if the courts have been notified and you show proof that there has not been any acknowledgement, then the courts will dismiss the case and consider it “statute barred.”

This means that the credit card company, bank, or lender cannot pursue you legally, but it does not force them to stop collecting on a debt.  If you are receiving collection calls, most provinces have legislation that allows you to make a written request to no longer receive phone calls, and that the creditor or its collections company contact you by mail only (this usually has to be sent by registered mail.  Keep your receipt and a copy of the letter).

Equifax has reported that anything most things on your credit report must be removed six years after the date of last activity.  So if your credit report shows that your last date of activity was June 13, 2007, then the information must be removed on June 13, 2013.  This is why some individuals will report that they know that they owe a debt to a credit card company, but it is no longer showing on their credit report.  Some creditors have been known to sell a debt and if that happens then the new owner can place it back on your credit report for another six years.

Most credit card companies or lenders recognize the hardship and limitations involved in having a major illness or permanent disability.  They are more willing to consider a lower settlement offer or other arrangement based on this hardship.  They also recognize that if they do not work with you now, that it may be difficult or impossible to go after you later.  Creditors have forgiven up to 80% and sometimes the full amount of the debt based on several factors including age (seniors), type of illness, financial hardship, psychological complications (OCD, clinical depression, etc.), and many other issues.  If you or someone you know is struggling with a major illness or disability; consider speaking with a debt arbitrator, or other service provider in order to determine your options.