What Legal Actions Can Creditors Take When You Don’t Pay Them?

david sklar

Creditors want you to pay them back, and they can use multiple strategies to pressure you to do so. In fact, some of these strategies are built into the terms of your loans.

Your loans come with interest rates that make your debts grow the longer that you take to pay them down. Your bill payments have strict deadlines — and if you miss those, you’ll get late fees tacked onto your next payments. These are small incentives that push you to prioritize repayment as soon as possible.

When the incentives aren’t enough, creditors will escalate their collection strategies in an attempt to get what they’re owed. This includes taking legal action against you.

Learn what legal actions your creditors can pursue and how David Sklar & Associates can help you avoid them:

What Creditors Can Do When You Don’t Pay

Creditors can take several methods to penalize you for not making your repayments in full and on time. Some of these methods occur immediately after you miss a single payment, while others occur after longer periods of non-payment. Here are some of the actions that creditors can take against non-paying customers:

  • Charging late fees
  • Raising interest rates
  • Marking your credit report
  • Using collection agencies
  • Pursuing co-signers for payment
  • Cutting off services
  • Seizing assets (for example, foreclosing your home after missing mortgage payments)
  • Withholding funds
  • Using the Right of Offset

What’s The Right of Offset?

The Right of Offset is a strategy that banks can use when you’re in debt to them. They can take funds from your bank account without needing any court approval in order to recoup what you owe them.

If creditors don’t think these strategies are enough to collect what they are owed, or they’ve tried the strategies already and they haven’t yielded successful results, they could make the decision to take legal action against you.

Legal Action

If you’re worried about creditors taking legal action against you, you have to consider three things:

How Much You Owe

It’s not common for creditors to take legal action against their customers because it is a complicated and costly endeavor. The reality is, most creditors are not going to take you to Court unless they believe it will be worth their time and effort. Instead, they will focus on customers that owe a significant amount of money — this will be much more than a few hundred dollars.

How Long You’ve Owed

Another important factor is how long you’ve owed these debts. In Ontario, there is a statute of limitations that stops unsecured creditors and debt collectors from starting legal action against you after two years of non-payment.

Who You Owe

Finally, you need to consider who you owe. A small creditor is less likely to go forward with legal action, but a large bank or government-backed creditor is. For example, the Canada Revenue Agency has an incredible amount of collection power and can pursue multiple types of legal actions against citizens when they see fit.

What Are Some Legal Actions That Creditors Can Take?

Creditors can take you to Court so that they can finally receive the funds that they are owed. If the judge agrees with their case, these are some of the legal actions they can take to access those funds:

Garnishing Wages

A wage garnishment order requires your employer to withhold a portion of your paycheque and send it to the creditor in an effort to repay them.

Freezing Bank Accounts

With this court order, the creditor can contact your bank and tell them to freeze your account and then send them the funds inside. 

Seizing Property

Unsecured creditors can use a Writ of Seizure to take possession of an asset as a way to repay them. This includes accounts receivables, where your customer must pay the creditor instead of paying you —that is a 100% loss for you.

How to Avoid Legal Actions

Making your payments in full and on time is the best way to avoid situations where creditors take legal action against you in order to get their payments. Unfortunately, this goal is not always easy to achieve.

Income uncertainty, large debt loads, and other financial issues can make it difficult to keep up with every upcoming payment that you have to make. If you find yourself in this position, here are some things that you can do before your creditors escalate their collection actions:

Review Your Finances

The first thing that you should do is look over your finances to see how you can decrease your expenses and make larger payments. If you need help with this, read our blog about owing money to see how you can manage your debt payments better.

Pay the Minimum

Credit card companies allow you to make a minimum payment when your bill is due. The minimum payment is based on a percentage of your balance at the end of the billing cycle, plus a monthly finance charge. It could be as low as $10. You can use a credit card payment calculator to get an idea of what the minimum for your cards will be.

Normally, paying the minimum for credit card debt is not a good habit to follow. It doesn’t make a dent in your debt load, and it won’t stop your balance from creeping closer to the limit. However, when times are tough, it’s better for you to cover the minimum payment than risk missing a payment altogether. This small contribution could stop the creditor from taking further action against you.

Contact Creditors

This might sound counterintuitive, but you should let your creditors know when you’re having a hard time making payments. They could offer lower rates, defer payments or modify your payment schedule to help you.

The strategy is not only effective for cellphone and cable TV providers, but it’s also a potential option for dealing with student loans and the CRA. As long as you are honest about your financial hardship, you can come up with a compromise with your creditor to make repayments more manageable.

Debt Consolidation

Debt consolidation is when you combine all of your debts into a single payment. You can do this through a debt consolidation loan, often provided through a bank or credit union. However, these come with high-interest rates, which may make it challenging to keep up with payments.

Consumer Proposals

Another way that you can consolidate your debts for easier repayment is by filing a consumer proposal. A consumer proposal is a legally binding agreement where you promise to repay a portion of your unsecured debts for up to a maximum of 5 years. If you complete this repayment plan, your debts to your unsecured creditors will be considered paid in full. You can repay your debts and gain a level of financial stability that would be incredibly challenging to achieve all on your own.

If you’re interested in filing for a consumer proposal, book a consultation at David Sklar & Associates. One of our licensed insolvency trustees will assess your finances, see if you qualify for a proposal and explain the process to you.

Legal Action and Consumer Proposals

One of the main benefits of a consumer proposal is that it stops all of your unsecured creditors from taking collection actions. They are not allowed to contact you about the money that you owe. They cannot initiate any legal action against you, nor can they continue any legal action that was already started prior to filing the consumer proposal.

If you don’t qualify for a consumer proposal, declaring bankruptcy may be the next best solution. The moment that you officially declare bankruptcy, you’ll be protected from creditors taking legal action against you. Our licensed insolvency trustees can also guide you through the personal bankruptcy process from the moment that you file to the official discharge.

If you’re ever concerned that your debts are getting you into serious legal trouble, come to David Sklar & Associates. Our licensed insolvency trustees will look into your financial situation and help you find the best solutions for debt relief. You can get through this tough situation.

Take Your First Step Towards A Debt Free Life

If you are overwhelmed by debt and live in the Toronto area, call us at 416-498-9200 to book a FREE, confidential appointment. We will review your financial situation in detail and discuss all of your options with you. Alternatively, you can fill out the form below and our team will reach out to you. 

Share This!

Share on facebook
Share on twitter
Share on linkedin
Share on reddit
Share on pinterest

Ready to live debt free?

I would say my experience with David Sklar was spectacular, they made it really easy for my through the whole process and now 9 months later my bankruptcy is discharged.i would recommend David Sklar to anyone.
HN
23:00 06 May 21
I had a nagging defaulted student loan that was holding me back. There were a few smaller issues that were compounding. The lockdowns really forced me to look into building back my credit and starting fresh.Ashley at David Sklar & Associates at the Keele and Finch location was a blessing. She was thorough in her explanations and answered any concerns I had. She gave me the options and let me decide what was best. After conferring with her, I decided bankruptcy was the best option. She made the process of filing for bankruptcy easy.There's nothing to be afraid of. Stigma attached to bankruptcy but you can reset if you work hard to make it happen.I highly recommend speaking with Ashley if you have any concerns about debt solutions.
A M
14:39 04 May 21
I highly recommend David Sklar & Associates Inc. They helped me with my finances along with the help of Ashley Carter whom assisted me thoroughly throughout the process of my Consumer Proposal. She is very friendly, professional and updated me occasionally through emails. With her tremendous help, I am very thankful to have accompanied someone like her!
Pilar
21:05 28 Apr 21
In behalf of David Sklar & Associates, Ms. Ashley Carter had been working tremendously and diligently to make people’s lives easier and stress free. Through this debt free program, my husband and I had been relieved from the headaches and worries of our financial standing before. Ashley, a soft spoken lady was very approachable and listened to our concerns. She explained to us very clearly the good things that will happen to our best interest. I believe that she is a great asset to the company and an excellent counsellor. My husband and I can’t thank you enough, Ashley, for all your help during those times when we needed it most. As of now, we are enjoying life in our seventies, though how simple it is we are happy because we have the assurance that sooner we will be debt free. Thank you so much Ashley for your kindness and for always being there for us. May God bless you more especially with good health.
Fribeda Fronda
19:14 27 Apr 21
I was so impressed with the professionalism , the speed, the attention, the compassion, and the efficiency your office of David Sklar provided for me, you provided me with necessary information, you helped me solve a big problem I had , you were always available to answer my questions, I can’t thank you enough ,Will always recommend you to anyone who could use your services, thank youDalia Berger
Dalia Berger
13:49 27 Apr 21
They understand and good advice
Lauren Jordan
13:28 27 Apr 21
The support I received was thorough and timely and the help that I needed with Credit Proposal was addressed in a single interaction. Thank you so much!
Jay Caja
04:19 15 Apr 21
We worked with Jackie. She is very professional and very caring. She is quick to respond and really cares about helping the people in front of her. I went with my uncle, who was scared of the whole process and mentally delayed. Jackie took her time with us and made him feel at ease. She carefully explained things multiple times and was very encouraging. She was a shining light in a difficult process.
stefania cicchino
13:54 27 Mar 21
Jackie is very professional, kind, supportive and super helpful. She was able to help me get back on track. Great service and I will definitely recommend them.
Christine Lowe
16:44 12 Mar 21
Jackie provided me excellent service, was very helpful, and she made feel very secured and she listened to all my concerns.i was speechless with excellent service.
Belen Trava
19:01 11 Mar 21