Frequently asked questions

When can a collection agency disclose the existence of my debt to someone other than me?

A.A collection agency is not permitted to disclose the existence of your debt to anyone other than you, except in the following limited circumstances: (1) the other person is also legally responsible to pay the debt; or (2) your creditor has obtained a judgment against you and the collection agency is contacting your employer to garnishee your wages.

Except for the two narrow exceptions referred to above, where a collection agency discloses the existence of your debt to someone other than you it is has committed a third party disclosure which is likely a violation of the statute in your province regulating collection agencies as well as the relevant privacy law in your province. It is a very serious matter for a collector or a collection agency to commit a third party disclosure.

A collection agency is permitted to speak to anyone for the limited purpose of obtaining contact information for you; for your residence address, the name and address of your employer, and a telephone number where you can be reached. If a collection agency contacts your neighbours, friends, family, household members or co-workers these individuals can decline to provide any contact information to the collection agency employee.

Under what circumstances can a collection agency leave a message requesting a return call?

A.A collector or a collection agency is permitted to leave a message for you on your voicemail or with someone other than you answering the phone provided no information is given disclosing the existence of a debt.

Collectors employed by collection agencies are permitted to leave their name and their phone number when requesting a return call. Collectors are not permitted to make any statements that would suggest the existence of a debt. Therefore, when leaving a message requesting a return call a collector is not permitted to provide the name of his employer, the collection agency, nor make any reference to the consumer’s account. If a collector or a collection agency breach this prohibition they have committed a third party disclosure which is illegal.

The practice of leaving telephone messages with neighbours

Be aware that some collectors, wanting to speak with a consumer in an attempt to collect a debt, will leave a message with a consumer’s neighbour requesting a call back. In some provinces the government agency responsible for regulating the conduct of collection agency considers this practice to be illegal behavior on the part of a collector and the collector’s employer.

Can a collector advise me he is sending the sheriff to my home next week to seize my personal belongings?

A.In virtually every Canadian province and territory it is illegal for a collector to advise you the sheriff will be attending at your residence tomorrow or next week to seize your personal belongings if you do not pay a debt. The sheriff is an officer of the court and the sheriff does not take instructions from a collection agency.

In most provinces it is illegal for a collector or a collection agency to make false statements.

In the case of unsecured debt a creditor seeking the assistance of the courts to recover monies from a debtor must first obtain a judgment against a debtor. A creditor seeking a judgment against a debtor must first commence a lawsuit against the debtor. A creditor will be in a position to obtain a default judgment against a debtor where the debtor fails to file a proper defence in a timely fashion.

Where a debtor properly files a defence the matter may proceed to trial where the burden of proof is on the creditor to prove its case at trial. In event a creditor obtains a judgment against a debtor, either by way of default judgment or after being successful at trial, certain enforcement remedies become available to the creditor. The type of enforcement remedies available to judgment creditors vary by province. The fact that a creditor obtains a judgment against a debtor is no guarantee that a creditor is going to recover any monies from a debtor.

Q.What is a judgment and what is its significance?

A.A judgment is awarded by a civil court. There are two scenarios in which a creditor may obtain a judgment against a debtor. If a creditor sues a debtor and the debtor fails to file a defence in a timely manner a court may award a default judgment in favour of the creditor. In those circumstances where a debtor is sued and the debtor properly files a timely defence the lawsuit may, but not always, proceed to trial. If the creditor is successful at trial the trial judge will award a judgment against the debtor in favour of the creditor for a specific monetary amount.

If you are sued it is important that you immediately seek legal advice in connection with filing a defence. If you do not properly file a defence in a timely manner you run the risk of the creditor obtaining a default judgment against you. Creditors are often in a position that they can provide the court with sufficient documentation to obtain a default judgment but they may lack sufficient documentation supporting their case to win at trial.

Significance of a judgment

The fact that a creditor, now known as a judgment creditor, has obtained a judgment is no guarantee that the creditor will obtain any monies from the debtor, now known as the judgment debtor. However, a creditor with a judgment is able to take advantage of a number of enforcement remedies that are not available to a creditor without a judgment.

Enforcement remedies that are available to judgment creditors vary by province. Few enforcement remedies are available in a number of provinces such as New Brunswick. In most provinces a judgment creditor may be able to garnish a percentage of the judgment debtor’s wages and place a lien on the judgment debtor’s real estate provided the latter is a legal owner of the property. In most provinces a judgment creditor may be able to seize monies in a judgment debtor’s bank account unless the monies in the account are social assistance benefits.

Q.What is the difference between secured and unsecured debt?

A.There are two types of debt; secured debt and unsecured debt. The difference between these two types of debt is important for two reasons. Firstly, it is much more difficult for a creditor to recover an unsecured debt. Secondly, filing for personal bankruptcy does not eliminate a bankrupt’s secured debts.

Secured Debts

Secured debts are debts where the creditor can recover some collateral in the event of a debtor’s non-payment. The debt is said to be secured because of the creditor’s right to the collateral in the event of default. The most common secured debts in Canada are mortgages on homes and car loans financing the purchase of an automobile. Homeowners who borrow money and take out a mortgage provide the lender with a security interest that attaches to their home. In most instances where a person finances the purchase of an automobile the lender registers a lien against the car.

Unsecured Debts

Unsecured debts are debts in which the creditor has no collateral to satisfy a debt in the event of a default. Virtually all credit card debt is unsecured debt. Many personal loans and lines of credit, particularly for smaller amounts, are unsecured debt. Student loans and income taxes are unsecured debt. Monies owing to utility companies for telephone, water, hydro, internet, and cable service are unsecured debt.

Certain types of debt may be secured or unsecured

Certain types of debt may be secured or unsecured depending on whether or not the creditor has a right to collateral in the event of default. Personal loans, lines of credit, and bank overdrafts may be secured or unsecured debt. A few of the credit cards available today provide the creditor with collateral and are therefore secured debt.

One of the trends today is for financial institutions to extend a significant amount of credit to a consumer under a master credit agreement: extending credit for credit cards, lines of credit, and the financing for the purchase of a home, all secured by a mortgage on the consumer’s home.

Q.Is it possible to avoid paying a debt due to the passage of time?

A.It might be possible to avoid paying a consumer debt, but not a debt owed to the government, in circumstances where the relevant limitation period on your debt has expired prior to your creditor commencing a lawsuit against you. Each province in Canada has a limitation period which forces creditors to sue individuals on consumer debts within a certain number of years. As a practical matter, once the limitation period on your consumer debt has expired it is very difficult for a creditor to successfully recover a debt from you unless you pay it voluntarily. Failure to pay a debt will likely have negative consequences for you in the future.

Each province in Canada has a limitation period for consumer debts. Limitation periods are not consistent in each province ranging from two years to six years. It is possible for a consumer to restart the clock on a limitation period by either making a partial payment or making a written acknowledgement of the debt to the creditor or the creditor’s collection agent.

Each year collection agencies collect tens of thousands of consumer accounts in circumstances where the relevant limitation period has expired and the consumer is no longer legally responsible to pay the debt. Depending upon the age of your consumer debt and the province you live in it may be illegal for a collection agency to attempt to collect a particular account from you where the limitation period has expired.

Q.Why might my financial situation not be as bleak as it appears?

A.You may be experiencing some major financial problems. You may be doing any one or more of the following:

  • borrowing money from family members
  • cutting up your credit cards
  • considering a debt consolidation loan or second mortgage
  • resorting to payday loans
  • considering credit counselling
  • considering personal bankruptcy

You may be stressed out about your current financial predicament. However, your financial situation may not be as bleak as it appears:

This may be especially the case where

  • a significant percentage of your debt is unsecured debt including credit cards, lines of credit and personal loans other than student loans
  • due to your financial situation you may effectively be judgment proof
  • you may live in a province where it is difficult to enforce a judgment because fewer enforcement remedies are available to judgment creditors
  • your existing income is sufficient to pay for basic necessities such as shelter, food, clothing and no-frills transportation expenses

You may be in a financial hole right now. However, you might be able to get yourself out of this situation using a combination of proven debt avoidance and debt elimination strategies.

Q.Why might my financial situation not be as bleak as it appears?

A.You may be experiencing some major financial problems. You may be doing any one or more of the following:

  • borrowing money from family members
  • cutting up your credit cards
  • considering a debt consolidation loan or second mortgage
  • resorting to payday loans
  • considering credit counselling
  • considering personal bankruptcy

You may be stressed out about your current financial predicament. However, your financial situation may not be as bleak as it appears:

This may be especially the case where

  • a significant percentage of your debt is unsecured debt including credit cards, lines of credit and personal loans other than student loans
  • due to your financial situation you may effectively be judgment proof
  • you may live in a province where it is difficult to enforce a judgment because fewer enforcement remedies are available to judgment creditors
  • your existing income is sufficient to pay for basic necessities such as shelter, food, clothing and no-frills transportation expenses

You may be in a financial hole right now. However, you might be able to get yourself out of this situation using a combination of proven debt avoidance and debt elimination strategies.

Q.Personal bankruptcy: How much does it cost and what are its consequences?

A.It may cost an individual between $1,400 and $1,700 to file for personal bankruptcy.

When you file for personal bankruptcy you surrender all your personal possessions to the bankruptcy trustee except for certain property that is exempt from seizure in your province. The property transferred to your trustee is sold and the proceeds of sale are distributed to your creditors.

The major advantage of personal bankruptcy is the elimination of most, if not all, of your unsecured debts. Certain unsecured debts survive bankruptcy. These include spousal support and child support, fines, some government overpayments and student loans where the bankrupt ceased to be a student less than 10 years ago. Your secured creditors are not affected by your bankruptcy.

Personal bankruptcy is not particularly attractive for some people, especially individuals with significant assets such as equity in a home or significant incomes, particularly high-income earners with few dependents who may be required to pay monies deemed as “surplus income”. Because a bankrupt may lose property and have difficulty obtaining credit for many years following discharge from bankruptcy personal bankruptcy should be seen as a last resort.

Q.What can I do if I want to fight back and make things uncomfortable for a collection agency?

A.Some collectors may never generate a complaint from a member of the public. You may be unfortunate and be dealing with unprofessional employees at a collection agency. You may have had enough of harassing telephone calls or some other form of unprofessional conduct and you want to respond to this collection agency misconduct.

 

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