You're a good, honest person. You know you should pay your debts. Youwantto pay your debts. But you can't. It's unbelievable how quickly things spiraled out of control. First it was one unexpected expense, then another. Now you're in over your head – missing payments, dodging collections calls and creditors are threatening to take you to court.
Even if a judgement goes against you, you know it won't make any difference. You have no assets of value and hardly any income to speak of. So, what can a creditor do when you can't pay, have nothing to give up and no wages to garnish? More importantly, how do you solve this problem for good?
What it means to be 'Judgment proof'
Creditors have the option to pursue legal action against debtors who fail to pay their bills or respond to collections action. Once the creditor successfully obtains a court order granting a judgement against you, it is up to them to enforce that judgement through various channels – including asset seizure or wage garnishment.
To ensure you maintain a reasonable standard of living, there are certain government mandated exemptions to these judgements. If all your assets and wages fall under that exemption, your creditor will not be able to enforce the judgement, thereby making you 'judgement proof'.
Examples of Exempt and Protected Property
B.C. Income Assistance –Under theEmployment and Assistance Act, it states that any provincial income assistance is exempt from garnishment.
Federal Income Benefits –Canada Pension Plan (CPP), Old Age Security (OAS) and Guaranteed Income Support (GIS) and Employment Insurance (EI) payments distributed either by cheque or direct deposit are exempt from garnishment by non-government creditors. However, other government bodies such as the Canada Revenue Agency (CRA) or the B.C. Family Maintenance Enforcement Plan (FMEP) can still garnish these payments for outstanding government debts, such as income tax or child support.
Personal Property –Each province has its own legislation determining what types of personal property are and are not exempt. In B.C. this falls under theCourt Enforcement Act. Protected assets include:
- All necessary clothing and medical aids for the debtor and / or their dependent(s)
- $4,000 of household goods
- $10,000 of tools of the trade
- $5,000 from a motor vehicle ($2,000 if you have spousal / child support arrears)
- $12,000 equity in principal residence ($9,000 outside the Greater Vancouver Area)
Jointly Owned Assets –Assets that are co-owned between you and another person are exempt from seizure unless you are both subject to the judgement.
Beware Bank Deposits
Regardless of where your income comes from – including the exemptions mentioned above – once income enters your bank account, it is no longer judgement proof. As a worst-case scenario, if your primary banking institution is the same one you owe money to, they could potentially freeze your accounts and use your account balances toward your outstanding debts.
To protect yourself, you may want to consider having a bank account with a financial institution whom you do not have any credit dealings and transferring your automatic deposits to this account.
Duration of Judgement Proof Status
You will remain judgement proof for as long as your financial status remains unchanged.
However, it is important to remember that judgement proof does not mean your debt, or the judgement, will go away. Once your financial situation changes and / or you obtain income or property that is not judgement proof (e.g. employment wages), your creditors may then resume enforcing judgement against your property.
Debt Doesn't Expire
B.C.'sLimitation Actprovides unsecured creditors (e.g. credit cards, lines of credit, payday loans) two years from the time you made your last payment to initiate legal action against you. However, that only limits their ability to obtain a judgement for wage and asset seizure; it does not expire the debt itself.
Short of taking you to court, your creditors may still proceed with regular collections activity such as requesting payment, sending written collections notices, contacting you by phone or reporting your delinquency to the credit bureaus. And they can continue to do this until you've settled your accounts to their satisfaction.
Notable exceptions to theLimitation Actinclude:
- Secured debt (vehicle loans and mortgages)
- Government debts, including taxes and student loans
- Child support, fine and civil judgments involving fraud
Collection Activity and Your Rights
As above, judgement proof status and the two-year limitation period can only protect you from creditors exercising or obtaining a court judgement. They do not prevent creditors from engaging in other regular collections activities. Because your judgement proof status can continue for an indefinite period, you may have to endure the stress and frustration of collections activity for months or even years. So, it's important to know your rights and what creditors can and cannot do.
Debt collectors can:
- Contact you Monday through Saturday between the hours of 7:00 a.m. and 9:00 p.m.
- Contact you Sunday between the hours of 1:00 p.m. and 5:00 p.m.
- Contact your friends, relatives, employer or neighbours – but only to request your telephone number or address.
Debt collectors cannot:
- Suggest to your friends, employer, relatives or neighbours that they should pay your debts, unless one of these individuals has co-signed your loan
- Use threatening, intimidating or abusive language
- Apply excessive or unreasonable pressure on you to repay the debt
- Misrepresent the situation or give false or misleading information
- Call you on your cell phone, unless you've provided that number as a way to reach you
If you feel a debt collector is not respecting your rights, you may contact theProvincial Consumer Affairs officeto file a complaint.
Defeat Your Debt
The idea of being judgement proof may initially sound reassuring. But it can only provide temporary relief from wage garnishment or asset seizure. It's not a permanent solution. Remember, your status could change at any time. And when it does, your creditors will be ready to commence or enforce any judgement against you.
There is only one way to end the stress of your debt and harassment from your creditors: you need to settle for good.
While this may seem impossible given your current situation, a Licensed Insolvency Trustee can help. During a Free Confidential Consultation, they will work with you to review your financial situation and determine if you qualify for a Life-Changing Debt Solution such aspersonal bankruptcyorConsumer Proposaland whether that might be your best path forward. They'll explain your options and help you make the choice that's best for you. Though things may seem difficult now, you're just one phone call away from a financial fresh start.
