Managing an increasing debt load is stressful enough without a constant barrage of phone calls reminding you that you’re behind on your payments. Debt collectors may start by inquiring about your overdue balance, questioning when you expect to become current, and warning of potential late fees. However, these calls may soon evolve into worrying threats — suggesting your assets could be seized, your wages could be garnished, or that your credit history could be ruined forever.
You already feel overwhelmed by the weight of your delinquent credit cards and loans, and now you fear the possibility of losing your car or your home, or that you won’t be able to feed your family. Understanding your rights as a consumer can help protect you when dealing with creditors and debt collection agencies. Let’s discuss how different types of debt work, how that influences the various collection mechanisms available to creditors, and what rules and regulations debt collectors are obligated to follow.
Secured debt
Secured creditors lend money on the condition that they be given rights against assets that you own, such as your house or your car — also known as collateral. If you fail to meet the terms of the security agreement by making payments excessively late, not making payments in the full amount owed, or not making payments at all, the creditor must give you a written notice of the default. This notice will provide a specified amount of time to become current on your payments.
If the formal notice period expires and the default has not been remedied, the creditor can begin collections activities by seizing and selling the assets you put up for collateral. If the proceeds from the sale are not sufficient to cover the loan balance, the creditor may be able to sue you for the difference.
Unsecured debt
Unsecured creditors lend money to individuals without taking collateral. They will not have rights to any assets you own if you fall behind on your payments — however, they do still have recourse to collect the outstanding balance.
In most cases, this takes the form of the creditor suing you and obtaining a court judgment ordering you to repay the debt. Creditors can use that judgment to garnish wages and seize assets if you are not able to arrange a repayment plan with them.
Collections laws
Canadian debt collectors are provincially regulated. While collections laws vary across jurisdictions, many regulations are consistent across most provinces and territories. Let’s discuss what debt collectors can and cannot do:
Identify the debt
Debt collectors must identify themselves as a collections agency, specify the creditor they represent, and provide you with information about the amount of debt owed. They are required to notify you in writing before initiating action to collect a debt or starting legal action against you.
Contact employers, friends, and family members
Debt collectors can contact your friends, employer, relatives, or neighbours for information such as your telephone number and address. However, they cannot ask for any additional information about you unless the person they are contacting has guaranteed or co-signed the debt in question. The only other exception is if you have given the collector permission to discuss the debt with that particular person.
Debt collectors can contact your employer, but only to confirm your employment, job title, and work address.
Provide false information
A debt collector cannot lie or provide false or misleading information to you. They are not allowed to use threatening, intimidating, or abusive language at any time.
Additional fees
Debt collection agencies cannot add service fees, penalties, or any other costs to the debt you owe under any circumstances. However, they can add legal fees or non-sufficient funds on any payments that you submit.
What happens if a debt collector does not respect my rights?
If you are dealing with a debt collector who is not respecting your rights, there are options available to protect you. You can contact the Financial Consumer Agency of Canada with your concerns if you are dealing with the collections department of a federally regulated financial institution, such as a bank, or a debt collection agency hired to collect on their behalf.
If your debt has been sold to a collection agency, you can raise your concerns with the consumer affairs office applicable to your province. In either case, the collector must disclose who they represent and what jurisdiction they report to.
Get the right advice
Reach out for help if you are struggling with debt and are worried about potential collections action being taken. Licensed Insolvency Trustees (LITs) have the experience to help you assess all your debt relief options, including Consumer Proposals and Bankruptcy, so you can choose the right option for your unique situation. Together, we can help you achieve a fresh financial start.
