July 20th, 2015 by A Licensed Insolvency Trustee
Unsecured creditors can find it difficult to recover monies from people who owe them money. Did you know that it is possible for your creditor to sue you, obtain a judgment against you, and then never collect a penny from you despite the fact that it has obtained a judgment against you?
Ten Perfectly Legal ways to Make Yourself Creditor Proof are:
- Close any bank accounts at financial institutions where you have credit cards, personal loans, lines of credit, or your mortgage.
- Sell your real property (house).
- Avoid ownership of property in your own name.
- Drive an inexpensive Car.
- Close your chequing or savings accounts.
- Avoid owing more than $3,000 to a single creditor.
- Seek employment in a field where you can change employers.
- Take advantage of wage garnishment laws which protect low-income workers.
- Relocate to New Brunswick.
- Move to another Country
If you are experiencing debt problems, you are definitely relieved to hear that you have options, but you probably have a lot on your mind in relation to your debt woes like how to protect your assets from a lawsuit in Canada. A common question that debtors seek answers to is: how can creditors find my bank account or can a creditor take my house in Canada? Fret not, there are a lot of things that you can do—all of which are perfectly legal—that will make it more difficult for your creditors to recover any monies from you.
To help prevent you from being dragged further into the vicious and downward spiral of debts and financial losses, we’ve compiled a guide with helpful tips on how to make yourself creditor- proof. If you are able to effectively use one or more of the following tactics then your creditor might never be able to recover a nickel from you.
Avoiding having monies scooped under a creditor’s “right of set-off”
If you are struggling to pay your debts then it is not prudent to do all of your banking at the same financial institution. Debtors are often worried about whether a creditor can take their house in Canada to settle their debts, but they often overlook the fact that the funds in their bank accounts can be used to pay off creditors or even impending monthly credit card payments.If, for example, you have both a bank account and a credit card through ABC Bank and you do not make your minimum monthly payment on your credit card then your bank has the right, under something called a “right of set-off” to take the amount of your minimum payment out of bank account and use those monies to make the minimum monthly payment on your credit card.
Ideally, if you currently are having debt problems, or you anticipate having debt problems in the future, then you should close all of your bank accounts at a financial institution where you have credit cards, personal loans, lines of credit, or the financial institution where you obtained your mortgage. You can make these payments from a chequing account at another financial institution.
Selling your real property
Creditors are much more likely to sue someone over an unpaid account if the consumer owns real property or a house in their own name. Yes, judgment can be obtained by creditors to take or seize your house in Canada to recover the payments you owe them.
If you anticipate that you will no longer be able to make the payments on your unsecured consumer debt in the future then you should seriously consider putting your real property up for sale. This might enable you to save the equity that you have accumulated in your real property.
Avoiding ownership of property in your own name
Most debtors are often wondering whether creditors can ‘take’ or seize their house in Canada. However, ideally speaking, if you are a debtor, then it’s best to not have any property in your own name. If you are married then any assets that you purchase should be purchased in the name of your spouse. If you are not married then when you acquire an asset in the future then you might want to acquire the asset in the name of a trustworthy family member who not only you trust but also does not have debt problems of their own.
It would be worthwhile to introduce the term “judgment proof” here and what implications it can have for debtors in Canada. There are certain exemptions to the judgments that creditors have obtained against debtors. If these exemptions apply to all your property, wages, and other assets, they make you judgment proof as creditors cannot enforce the judgment. In short, this means that the debtor does not own any or enough property or claims the benefits of exempt property.
One of these exemptions is jointly owned assets – assets that are co-owned by you and another person. As such, these are exempt from judgment unless both of you are subject to the judgment. So it is a good idea for debtors to co-own assets with a co-owner who ideally is free of any debts, if owning an asset in one’s name is unavoidable.
Please note that while judgment proof offers debtors personal creditor protection in Canada (provided the exemptions apply), it does not, however, prohibit creditors from attempting to secure judgment against them or obtain collections by way of phone calls, written notices, or reporting your delinquency to credit bureaus.
Driving an inexpensive automobile
Other judgments to the judgments extend to personal property. Every province in Canada has a law which exempts certain property from seizure by judgment creditors. This law means that if your creditor were to sue you and obtain a judgment against you that some of your property could not be seized by your creditors. This exemption is typically around $10,000 for items found in a residence—furniture, appliances, and clothing.
There is also a specific exemption for motor vehicles which is approximately $4,000 to $6,000 depending upon which province you live in. This means that if are experiencing major financial difficulties it would be more prudent for you to be driving a car with a Blue Book value under $5,000—on which you are making the required monthly payments unless you paid cash for it—as opposed to a more expensive vehicle.
Getting along without a savings or a chequing account
There are two circ*mstances where, ideally, you want to avoid having a bank account in your own name. Firstly, if you owe monies to the Canada Revenue Agency it will seize monies in your bank account and apply it against monies owing to the Federal Government. The Canada Revenue Agency, unlike other creditors, can do this even if they have not obtained a judgment against you.
Secondly, if you owe monies to any creditor and that creditor, sues you, and subsequently obtains a judgment against you then it can effectively seize monies in any bank account in your name using a garnishment. This is done with a Notice of Garnishment served to the bank, after which the funds (up to the amount owed) that a debtor holds at a bank are seized and handed to the sheriff who in turn hands them to the creditors.
For many Canadians, it is possible to live without a chequing account or a savings account. It is possible to cash a cheque payable to yourself, for a fee, at any one of a number of firms that offer payday loan services. You can cash your cheque at these locations without opening a bank account. You might even want to take advantage of a secured credit card available through a payday loan firm. For example, if you obtain a Titanium VISA through a Cash Money outlet then you can make recurring payments to your creditors—for expenses such as phone bills and internet services– without the necessity of having a bank account.
If having a bank account is somehow not avoidable, consider co-owning it with another person. The bank account garnishment laws in Ontario or anywhere else in Canada allow creditors, who have a judgment against you, to garnish the whole account unless it is a joint account that is co-owned by another person. However there is a caveat: they would still be able to garnish 50% of the account.
Avoid owing more than $3,000 to a single creditor
It is not cost-effective for creditors, especially large creditors to sue consumers for relatively small amounts of money. It is possible that a person might owe $25,000 in unsecured consumer debt but he doesn’t owe more than $3,000 to a single creditor. There is a good chance that this consumer might not be sued by a single creditor because the consumer does not owe more than $3,000 to any one creditor.
Where possible seek employment in a field where you can change employers
If your creditor sues you and obtains a judgment against you, they might try and recover monies from you using a wage garnishment through the courts. In order to do this, your creditor has to find your employer, and serve the appropriate documents on the court and on your employer. Once your employer receives the appropriate documents then it will be necessary for your employer to deduct a portion of your wages from your paycheque and remit it the court for distribution to one or more of your judgment creditors.
If you have a low-paying job in the service industry your creditor will likely not attempt to use a wage garnishment against you because most people will simply quit their job and find another job with a different employer to avoid having any further garnishment of their wages. There are many jobs where employers compete for staff which are well-paying jobs. Dental hygienists would be one such job. If you are a dental hygienist living in a major metropolitan area and a creditor obtains a judgment against you then you might very well quit your job and get a dental hygienist job with a different employer if your current employer were to receive a garnishment notice from the court.
Taking advantage of wage garnishment laws in your province
Depending upon your financial circ*mstances, and the province in which you live, it might be possible for you to take advantage of the wage garnishment law in your province to mitigate the impact of a wage garnishment.
Take advantage of wage garnishment laws which protect low-income workers
With the exception of Ontario, every province and territory in Canada has a law which has a “minimum exemption” from wage garnishments against the residents of that province. These laws provide some relief to low income consumers whose wages are subject to a wage garnishment. Depending upon your circ*mstances, some or all or your wages might be protected from wage garnishments.
Bring a motion before a judge to reduce the amount of monies deducted from your pay under a garnishment notice
In virtually every province it is possible for a consumer to bring a motion before a judge in which the consumer is seeking an order from the judge reducing the amount of money deducted from a person’s wages on the basis of financial hardship.
Relocating to New Brunswick
If you owe monies to your creditors then one option you might want to consider is moving to New Brunswick which has been described as a debtor’s haven. I can recall a phone call many years ago with a civil servant, responsible for supervising the conduct of collection agencies in New Brunswick, who described her province as a “debtor’s haven”.
Moving outside of Canada
Creditors, and their authorized collection agents, have a poor track record of recovering monies from Canadians who move outside of Canada. In my twenty-two year career in the collection industry I am not aware of a single instance where a Canadian creditor has sued a Canadian living outside of Canada and successfully recovered any monies from them.
Hopefully this guide helped assuage some of your doubts concerning how to hide money from creditors in Canada or whether creditors can take your house in Canada. We hope you find the right path towards becoming “creditor proof”.
A Licensed Insolvency Trustee
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FAQs
If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.
What is the 11 word phrase to stop debt collectors? ›
If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.
How does a debt collector prove they own the debt? ›
If the debt collector sues you, they must prove that they purchased your debt from your creditor. Generally, they do so by providing a copy of the purchase agreement. If the debt collection agency resells your account to another debt collector, the chain of ownership grows.
How do you hide from creditors? ›
Seven Ways to Protect Your Assets from Litigation and Creditors
- Purchase Insurance. Insurance is crucial as a first line of protection against speculative claims that could endanger your assets. ...
- Transfer Assets. ...
- Re-Title Assets. ...
- Make Retirement Plan Contributions. ...
- Create an LLC or FLP. ...
- Set Up a DAPT. ...
- Create an Offshore Trust.
Bank accounts solely for government benefits
Federal law ensures that creditors cannot touch certain federal benefits, such as Social Security funds and veterans' benefits. If you're receiving these benefits, they would not be subject to garnishment.
What is the 777 rule with debt collectors? ›
One of the most rigorous rules in their favor is the 7-in-7 rule. This rule states that a creditor must not contact the person who owes them money more than seven times within a 7-day period. Also, they must not contact the individual within seven days after engaging in a phone conversation about a particular debt.
What is the magic 11 word phrase? ›
Summary: “Please cease and desist all calls and contact with me, immediately.” These are 11 words that can stop debt collectors in their tracks. If you're being sued by a debt collector, SoloSuit can help you respond and win in court. How does the 11-word credit loophole actually work?
How can I get a collection removed without paying? ›
You can ask the creditor — either the original creditor or a debt collector — for what's called a “goodwill deletion.” Write the collector a letter explaining your circ*mstances and why you would like the debt removed, such as if you're about to apply for a mortgage.
What happens if debt collector Cannot validate debt? ›
What Happens Now? If a debt collector can't verify your debt, then they must stop contacting you about it. And they have to let credit bureaus know so they can remove the debt from your credit report.
What are five things a collection agency can t do? ›
They cannot swear, threaten to illegally harm you or your property, threaten you with illegal actions, or falsely threaten you with actions they do not intend to take. They also cannot make repeated calls over a short period to annoy or harass you. Debt collectors cannot make false or misleading statements.
Summary: If you're being sued by a debt collector, here are five ways you can fight back in court and win: 1) Respond to the lawsuit, 2) make the debt collector prove their case, 3) use the statute of limitations as a defense, 4) file a Motion to Compel Arbitration, and 5) negotiate a settlement offer.
Can creditors see your bank account balance? ›
Can debt collectors see your bank account balance? A judgment creditor cannot see your online account balances. But a creditor can ascertain account balances using post-judgment discovery. The judgment creditor can subpoena a bank for bank statements or other records which reveal a typical balance in the account.
How do you clear a debt trap? ›
Opt for debt consolidation: One of the best ways to get out of a debt trap is debt consolidation. This means that you can take a new, lower-cost Personal Loan and pay of several of your pending debts. When you consolidate your debt, you are combining multiple debts into a single debt.
Can a debt collector empty my bank account? ›
If a debt collector has a court judgment, then it may be able to garnish your bank account or wages. Certain debts owed to the government may also result in garnishment, even without a judgment.
How can I stop my bank account from being garnished? ›
- Pay your debts if you can afford it. Make a plan to reduce your debt.
- If you cannot afford to pay your debt, see if you can set up a payment plan with your creditor. ...
- Challenge the garnishment. ...
- Do no put money into an account at a bank or credit union.
- See if you can settle your debt. ...
- Consider bankruptcy.
Three Ways to Stop a Garnishment
- Full Payment to the Creditor. If the creditor receives full satisfaction of the debt obligation including their court cost, the judgment will be satisfied and the wage garnishment stopped. ...
- Filing an Objection with the Court. ...
- File for Bankruptcy Protection.
Top 7 Debt Collector Scare Tactics
- Excessive Amount of Calls. ...
- Threatening Wage Garnishment. ...
- Stating You Have a Deadline. ...
- Collecting Old Debts. ...
- Pushing You to Pay Your Debt to “Improve Your Credit Score” ...
- Stating They “Do Not Need to Prove Your Debt Exists” ...
- Sharing Your Debt With Family and Friends.
Enter the 2-2-2 rule: Try and swing a date night every two weeks, a weekend away every two months and a week away every two years. The rule has its origins on a Reddit thread from 2015 and has in recent weeks reappeared on social media as a form of relationship advice.
What not to tell a debt collector? ›
If you get an unexpected call from a debt collector, here are several things you should never tell them:
- Don't Admit the Debt. Even if you think you recognize the debt, don't say anything. ...
- Don't provide bank account information or other personal information. ...
- Document any agreements you reach with the debt collector.
No, when someone dies owing a debt, the debt does not go away. Generally, the deceased person's estate is responsible for paying any unpaid debts. When a person dies, their assets pass to their estate. If there is no money or property left, then the debt generally will not be paid.
Is there a way to illegally change credit scores? Technically, yes. You could hire a hacker to change your credit score by breaking into the system and clearing bad credit records. However, while it might sound like a tempting solution to revive your poor credit score, hiring a hacker is a bad idea.
What happens if you never pay collections? ›
Several potential consequences of not paying a collection agency include further negative impacts to your credit score, continuing interest charges and even lawsuits. Even if you can't pay the debt in full, it's often best to work with the collection agency to establish a payment plan.
How long before a debt becomes uncollectible? ›
Some debts, though, such as federal student loans don't have a statute of limitations. Most states or jurisdictions have statutes of limitations between three and six years for debts, but some may be longer. This may also vary depending, for instance, on the: Type of debt.
What are 609 letters? ›
A 609 dispute letter points out some inaccurate, negative, or erroneous information on your credit report, forcing the credit company to change them.
What is a goodwill letter to remove paid collections? ›
What is a goodwill letter? When you write a goodwill letter, you're asking a creditor or collection agency to remove a negative mark on your credit reports. Why bother? Dings on your reports, such as a late payment or an account in collections, stay on your reports for seven years and weigh down your credit scores.
Do debt validation letters really work? ›
Do Debt Validation Letters really work? Yes, they do. When a debt collector receives a Debt Validation Letter, they are legally required to provide validation of the debt. Debt Validation Letter's work best when they include a cease and desist clause that forces a lawsuit.
What is the debt validation rule? ›
Validation of debts. (5) a statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
Can I pay the original creditor instead of the collection agency? ›
It's possible in some cases to negotiate with a lender to repay a debt after it's already been sent to collections. Working with the original creditor, rather than dealing with debt collectors, can be beneficial.
What's the worst collections can do? ›
The worst thing they can do
If you fail to pay it off, the collection agency could file a suit. If you were to fail to show up for your court date, the debt collector could get a summary judgment. If you make an appearance, the collector might still get a judgment.
How do you get around collections? ›
What Should You Do When You Find Out Your Account Is in Collections?
- Don't Ignore the Debt. ...
- Deal With the Creditor First. ...
- Ask the Debt Collector to Stop Contacting You. ...
- Look Into Negotiating the Debt. ...
- Be Sure You Know Whom to Pay. ...
- Consider Disputing the Debt. ...
- Think About Hiring an Attorney.
You have two tools you can use to dispute a debt: first, a debt validation letter the debt collector is required to send you, outlining the debt and your rights around disputing it; then, a debt verification letter. You can submit a written request to get more information and temporarily halt collection efforts.
Do creditors ever forgive debt? ›
Debt forgiveness happens when a lender forgives either all or some of a borrower's outstanding balance on their loan or credit account. For a creditor to erase a portion of the debt or the entirety of debt owed, typically the borrower must qualify for a special program.
What will creditors settle for? ›
Typical debt settlement offers range from 10% to 50% of the amount you owe. Creditors are under no obligation to accept an offer and reduce your debt, even if you are working with a reputable debt settlement company.
How many times a day can a creditor call you before it becomes harassment? ›
Nevertheless, creditors may not call you more than 7 times within 7 consecutive days or call you within 7 days of talking to you about the debt. If your creditor calls you multiple times a day or continues calling even after you answer the phone and speak with them, you are likely facing creditor harassment.
How can a creditor wipe your bank account without notice? ›
Does a creditor have to notify you before freezing your bank account? No. A creditor does not need to tell you if your bank account is frozen after securing a judgment against you for unpaid debt. However, a creditor must notify you when it files a lawsuit against you and when it has received a judgment against you.
Can a creditor freeze my bank account without notifying me? ›
No. A judgment creditor does not have to give you specific notice before freezing your bank account. However, a creditor or debt collector is required to notify you (1) that it has filed a lawsuit against you; and (2) that it has obtained a judgment against you.
What states prohibit bank garnishments? ›
What States Prohibit Bank Garnishment? Bank garnishment is legal in all 50 states. However, four states prohibit wage garnishment for consumer debts. According to Debt.org, those states are Texas, South Carolina, Pennsylvania, and North Carolina.
What are the 5 ways to get out of debt? ›
5 Steps to Getting Rid of Debt
- Set a goal. All successful projects start with a clear goal. ...
- Make a list of your current debts. In order to get rid of your debt, you need an accurate and complete list of the debt you have. ...
- Gather additional information on debt repayment. ...
- Make a plan. ...
- Stick with your plan.
The trap depth is the minimum energy that is required to free a charge from the trap. It is chosen to be large enough so that the rate of detrapping is very low at room temperature. Thus, if the exposure is carried out at ordinary temperatures,…
What to do when you're in debt and have no money? ›
You can get out of debt with no money and bad credit with the help of a debt management program or a loan from a friend or family member. You should also look into getting a debt consolidation loan for bad credit, especially if you have some income despite not having any money saved.
Bank accounts solely for government benefits
Federal law ensures that creditors cannot touch certain federal benefits, such as Social Security funds and veterans' benefits. If you're receiving these benefits, they would not be subject to garnishment.
Who can access my bank account without my permission? ›
Only the account holder has the right to access their bank account. If you have a joint bank account, you both own the account and have access to the funds. But in the case of a personal bank account, your spouse has no legal right to access it.
How do creditors find your bank account? ›
Creditors and debt collectors can find your bank accounts through your previous payment records, credit applications, skip tracers, and information subpoenas. Most of the time, the creditor must obtain a court order before garnishing your bank accounts, but this isn't the case for some government entities.
Can my wife's bank account be garnished for my debt? ›
In community property states, a judgment creditor of your spouse can garnish your joint accounts. In some states, even if you have separate bank accounts, a creditor can also garnish your separate account to pay for your spouse's debt.
What prepaid cards Cannot be garnished? ›
Reloadable prepaid cards, such as those from Starbucks or Walmart, fall into the closed or semi-closed prepaid card category. These cards can be used like a credit or debit card but are not linked to a bank account or SSN. As such, they are immune to garnishment, making them a secure choice for protecting your assets.
Can you negotiate after a garnishment? ›
It is sometimes possible to negotiate a wage garnishment directly with the creditor. Most creditors want to recoup as much of their debt as possible and may be willing to work out a deal. Build your argument before approaching the creditor.
Does wage garnishment affect credit? ›
If wage garnishment is a financial burden
A garnishment judgment will stay on your credit reports for up to seven years, affecting your credit score.
How do I stop a wage garnishment from the IRS? ›
- 1) Pay off your tax debt in full. The first way to stop wage garnishment is to pay your tax debt in full. ...
- 2) Set up a payment plan. The IRS is typically willing to work with taxpayers who owe a tax debt. ...
- 3) Negotiate an Offer in Compromise. ...
- 4) Declare hardship. ...
- 5) Declare bankruptcy. ...
- 6) Work with a tax professional.
The correct answer is option (A) Inability to repay credit amount. A debt trap means the inability to repay credit amount.
What can I say to stop debt collectors? ›
How do I get a debt collector to stop calling or contacting me?
- Tell you there will be no further contact.
- Advise you that they or the creditor may take other specific actions they're legally allowed to take, such as filing a lawsuit against you.
Top 7 Debt Collector Scare Tactics
- Excessive Amount of Calls. ...
- Threatening Wage Garnishment. ...
- Stating You Have a Deadline. ...
- Collecting Old Debts. ...
- Pushing You to Pay Your Debt to “Improve Your Credit Score” ...
- Stating They “Do Not Need to Prove Your Debt Exists” ...
- Sharing Your Debt With Family and Friends.
What is debt-trap ? Answer: When a borrower particularly in rural area fails to repay the loan due to the failure of the crop, he is unable to repay the loan and is left worse off. This situation is commonly called debt- trap.
What is a depth trap? ›
The trap depth is the minimum energy that is required to free a charge from the trap. It is chosen to be large enough so that the rate of detrapping is very low at room temperature. Thus, if the exposure is carried out at ordinary temperatures,…
What are debt traps examples? ›
In essence, a debt trap happens when financial responsibilities outweigh a person's ability to repay loans. Payday loans could be one debt trap example, Payday loans are short-term loans with high interest rates and fees.
What is a drop dead letter? ›
You have the right to send what's referred to as a “drop dead letter. '' It's a cease-and-desist motion that will prevent the collector from contacting you again about the debt. Be aware that you still owe the money, and you can be sued for the debt.
Why you shouldn't answer debt collectors? ›
Your credit will take a hit
As soon as the delinquent account appears on your credit report, you can expect your credit score to take a nosedive. Even if you work out a payment plan with the creditor, there is a chance that the delinquent account will still ding your credit, even if just for a limited time.
How many times can a debt collector call in one day? ›
According to the FDCPA, a debt collector cannot call a debtor more than once per day for each debt. This means that if you only have one outstanding debt, then your debt collector is only allowed to call you one time per day.
What is the prayer about debt? ›
Forgive me for any carelessness on my part when it comes to spending. Help me to be wise with the funds I have, and give me wisdom when it comes to budgeting, paying off debt, and my spending habits. Lord, I can face this financial crisis in my life with your help and strength.
What is the most common debt? ›
The most common debt by total amount of debt in the U.S. is mortgage debt. Other types of common debt include credit card debt, auto loans, and student loans.
What is the most common bad debt? ›
Credit Card Debt
Owing money on your credit card is one of the most common types of bad debt. Credit cards are issued by lenders and allow you to make purchases on credit. These cards can come with high interest rates (often with a rate of more than 20%) and can get out of hand quickly.
They'll generally fall off your reports after seven years, and you may even have options for getting them removed before then. It's also important to know that you can take action against unfair practices by debt collectors.
