Is CERB dischargeable in bankruptcy?

The Government of Canada is beginning to recover Canada Emergency Response Benefit (CERB) payments where it has been determined that it was paid erroneously or was an overpayment.  The Office of the Superintendent of Bankruptcy (OSB) has told us that erroneous or overpayment of CERB are provable claims in bankruptcy (or a proposal). You can file bankruptcy, or a consumer proposal, to eliminate CERB debt.

Here’s the explanation:

Erroneous or overpayment of CERB is a releasable debt in the event of an insolvency (bankruptcy or consumer proposal) given that it is to be treated as a debt owed to the Crown pursuant to subsection 13(2) of the Canada Emergency Response Benefit Act (CERBA).  An erroneous or overpayment of CERB does not automatically constitute a debt that survives discharge under section 178 of the Bankruptcy and Insolvency Act (BIA). Section 178 outlines very specific debts not released by order of discharge, and CERB debt is not listed in this section. Debts that are not forgiven include court fines, support payments, debts due to fraud, for example. As a result, CERB debt is discharged by bankruptcy, unless these payments were obtained due to fraud.

The Canada Revenue Agency (CRA) had previously interpreted self-employment income eligibility guidelines for CERB to mean net income, not gross income, which resulted in some self-employed workers receiving a notice of CERB repayment based on income levels. 

CERB eligibility and self-employment

After significant public outcry, the government issued an update on February 9 announcing that self-employed individuals who applied for CERB and would have qualified based on their gross income will no longer be required to repay the benefit provided they met all other eligibility requirements.

This change comes after weeks of speculation and criticism of the CRA for not providing clear guidance regarding the gross versus net income test. There is no longer a need to file adjustments to 2019 tax returns to reverse previously claimed deductions in order to increase net income. 

If you must repay CERB because you were otherwise ineligible, or have taxes owing, interest relief is available until April 2022 within specified conditions. If you are unable to pay, tax obligations due to CERB remain dischargeable in a bankruptcy or consumer proposal.

Original article

The Canada Revenue Agency has begun issuing formal collection letters for CERB repayment to recipients who may or may not have been eligible for the payments they received.

You may have received a letter from CRA regarding CERB payments to be paid back along one of two themes we’ve seen to date:

• You incorrectly received CERB payments from both Service Canada and the CRA
• You did not earn the minimum income required to qualify

Double payments

When it was rolled out, the Canada Emergency Response Benefit allowed Canadians whose employment was directly affected by COVID-19 to apply for benefits through Service Canada, or through the Canada Revenue Agency (CRA), but not both. CRA has issued a clear collection notice demanding repayment where someone has received payments through both portals.

Income eligibility

To be eligible for CERB, you must have earned employment or self-employment income of at least $5,000 in 2019 or in the 12 months before applying.

To verify your income, CRA will look at your 2019 tax return, and any T4 or other income slips sent into the CRA.

If they cannot verify your income, you will receive a letter that states:

Based on the records we have at this time, we cannot confirm that you meet this requirement.

If you have earned income that meets the qualifications, and if you haven’t already done so, simply file your 2019 tax return.

Unfortunately, the rollout of CERB led to a lot of confusion as to income eligibility. The following income is not considered employment or self-employment income:

• Pension income
• Disability benefits
• Student loans and bursaries
• Family support payments
• Social assistance payments
• Employment Insurance (EI) earnings
• Canada Child Benefits (CCB) or Working Income Tax Benefit (WITB)
• Investment Income

Based on phone calls to our office, there may be a significant number of Canadians who collected CERB, assuming these forms of income qualified.  Many were under the impression that if I cannot get a job due to COVID, I can collect CERB. However, technically that was not the case. For example, if you were on disability and did not return, you did not qualify for CERB.

How will CRA collect?

The CRA has strong collection powers. Currently, they seem to be taking a softer approach to the collection of CERB overpayments.

CRA is encouraging Canadians who were not eligible for benefits to repay CERB voluntarily. They understand that many may have made an honest mistake and appear to be waiving penalties and interest on overpayments – at least for now. And this assumes that you received CERB incorrectly through an honest error.

If you do not remit payment by December 31, 2020, CRA will issue a tax slip, which just means they say you owe that amount to CRA.

This means CRA can:

• keep any future tax refunds
• keep any benefits or credits, including CCB and WITB

To date, the CRA has not threatened stronger collection action, but that may change.

How a CERB overpayment will affect your future taxes

There is another complication if you need to repay your CERB but do not do so before December 31. Because CERB is taxable, any payments you receive in 2020 that you have not returned before December 31 will be included as income on your 2020 tax return. This means you will have to pay tax on the full amount of CERB you received in 2020. You won’t be eligible to get a ‘refund’ for this tax if you pay it back next year until you file your 2021 tax return – an entire year later. 

What if you can’t repay CERB?

The Canada Revenue Agency has certainly indicated its intention to verify CERB benefits and claw back as much as possible where the recipient should not have received any payments. However, they have also indicated that they understand that many who applied incorrectly did so honestly.

We recognize that some people who applied may have later realized they were not eligible.

A bankruptcy or consumer proposal does erase government debts unless those debts arose due to fraud. It is our expectation that CRA will likely decide to accept CERB debt as dischargeable in a bankruptcy or consumer proposal based on the merits of each individual case.

If you have received a collection letter from the CRA, you have three options:

• Pay in full: If you can afford to, CRA is requesting that you repay any amounts before December 31 to avoid having your next year’s tax refund affected. You can pay online, through your CRA My Account or by mail. Make sure to indicate or choose options that your payment is for ‘repayment of CERB’.
• Make repayment arrangements: If you need more time to repay but can afford to pay the full amount, talk with a CRA agent to arrange a repayment plan. You can contact CRA at 1-833-966-2099.
• Consider a bankruptcy or consumer proposal: If you cannot afford to repay the full amount, talk with a Licensed Insolvency Trustee about your specific situation to determine if a bankruptcy or proposal can help.

The post CRA Collection Letters for CERB Ineligibility or Overpayment. Can You File Bankruptcy? appeared first on Hoyes, Michalos & Associates Inc..

Debt collection agencies are companies that specialize in recovering unpaid debts, and they may contact you to try to collect on overdue or defaulted accounts. Being chased by debt collectors can quickly turn into a nightmare, which is why many Canadians wonder how long collections agents can try to collect.

How long can a creditor pursue a debt in Canada?

The straight answer is that a collection agency can try to collect on a debt forever, but they only have a short window to pursue you legally to recover any money. Specifically, a limitation period sets a time limit during which a creditor can commence legal action by filing a claim with the court to collect on a debt.

Canada’s base limitation period is six years; however, many provinces have lowered that time limit to 2 years.

Is it legal for a debt collector to pursue a 20-year-old debt? Unfortunately, the answer is yes. A collection agency or creditor can try to collect an outstanding debt in perpetuity; however, through provincial statutes of limitation, you have a defense against any legal action once the limitation period has expired.

This means that even though a collection agency can continue to call and try to collect the debt, any legal action they might suggest after the time limit is up is an empty threat. Moreover, you have the right to file a complaint with the consumer protection office if you feel that the debt collectors are harassing you.

What is the statute of limitations in Canada?

The statutes of limitations for collection actions bars a creditor, or collection agency, from suing you after a specific time limit. After this time’s expiration, it is much harder—and often impossible—for a creditor to collect money from a debtor for an unpaid debt.

Canadian law starts with a limitation period of six years. However, each province and territory in Canada has its own statute of limitations. Each provincial limitation period as of January 2020 is as follows:

• Alberta: 2 years
• British Columbia: 2 years
• Manitoba: 6 years
• New Brunswick: 2 years
• Newfoundland and Labrador: 2 years
• Northwest Territories: 6 years
• Nova Scotia: 6 years
• Nunavut: 6 years
• Ontario: 2 years
• P.E.I.: 6 years
• Quebec: 3 years
• Saskatchewan: 2 years
• Yukon: 6 years

Limitation periods typically apply to unsecured debts. An old credit card debt, cell phone bill or gym membership account, for example, is subject to the limitation period. However, you cannot use provincial limitation laws to avoid a court judgment for:

• secured debt
• government debt, including student loans and tax debts
• non-dischargeable debts such as child and spousal support, fines and obligations arising out of fraud.

Provincial limitations laws do not apply to the Canada Revenue Agency. Generally, CRA collections has ten years to commence legal action for most tax debts and government student debt.

Can a collection agency re-age debt?

It’s essential to understand that the limitation period begins at the date of your last payment. It is possible to reset this starting point if the time limit has not yet expired. The limitation period starts over if you:

• Make a payment, even a partial payment
• Acknowledge, in writing, that you owe the debt.

Once a limitation period has expired, the starting point cannot be reset.

Debt collectors are very aware of this reset mechanism, which is why they will attempt to encourage you to make a small token payment as a ‘gesture of goodwill’ or send in a letter or email explaining your situation and asking for more time. Doing either of these can re-age the debt. Re-ageing a debt starts the limitation period for an old debt all over again, giving them more time to pursue legal action.

When an account is referred to a collection agency, the debt collector takes over the entire process of retrieving the outstanding money. When they do, they are in the same position as the original creditor in terms of how much they can collect and how. So, if your debt is new, your debt collector can still sue you. If it is an old debt and past the limitation period, they cannot successfully pursue any legal action but can, of course, continue to call.

Before you do anything in response to a demand for payment, look at your records to determine your last payment date. If you don’t know, pull a free copy of your credit report. See if that account is listed in your report’s accounts section and look at what the last payment date reported is.

Another way debt collectors attempt to re-age a debt is to report an old debt as in collection to the credit bureau. Collection accounts remain on your credit report for seven years. If a debt collector can get a 10-year-old debt back on your credit report, they know this may prompt you to pay or settle to have it removed. However, they cannot, by law, provide misleading information to a credit bureau. If this happens, contact the credit bureau and use the error dispute mechanism to remove the item. You can also report the collection agency for unfair or illegal practices.

What if your creditor wrote off the debt?

Accounts are generally referred to collection when a debtor stops making payments, and the creditor believes that there is a likelihood that the payments won’t be resuming anytime soon. This generally happens when your account is 90 days delinquent or longer, depending on your original creditor’s internal policies. After many years, they may also decide to sell your account outright to a debt buyer for pennies on the dollar.

When they send or sell an account to a collection agency, your creditor might decide to write-off or erase the debt from their books as non-collectible. Creditors often do this for tax reasons.

However, the debt does not go away just because the creditor wrote-off your debt in their records. A debt collector can still collect on a charged off debt.

What happens after the limitation period expires?

Even though you owe the money until the debt is paid or settled, a debt collector’s options are limited when the limitation period expires. At this point, calling and sending collection letters that demand payment before further action is taken are mostly just threats.

However, after the limitations period:

• Debt collectors can continue to call and ask for payment
• The debt will remain on your credit report for seven years from the date of last payment

If a debt collector does try to sue you after the limitation period, you can defend the action by notifying the court that the limitation period has expired. Failure to show up in court and plead this defense can result in a judgment favouring the collection agency.

Whether you choose to pay an old debt is up to you. It will fall off your credit after seven years, but collection agencies can still call. If you want to stop the calls, you can offer to settle. Only make this offer if that is what you intend to do. Otherwise, ignore the calls.

Whether the limitation period has passed or not, you have rights when dealing with a debt collector. Debt collectors can only contact your friends, relatives, neighbours, or employer to get your telephone number or address, but they aren’t allowed to suggest to them that you should pay your debts. They can’t use threatening or intimidating language and apply unreasonable pressure to force you to repay the debt.

If a debt collector has not respected your rights, you can file a complaint with the Financial Consumer Agency of Canada or provincial consumer affairs office.

How long does a collection impact your credit report?

There are two time periods to consider if you have an account sent to a collection agency:

• The statute of limitations which bars lawsuits or legal actions
• The length of time collection accounts will remain on your credit report.

A collections account will remain on your credit report for seven years, whether paid or not. Depending on the credit bureau, the debt will remain on record either from the date of your last payment or from the date you missed your payment due date. Having accounts in collection will lower your credit score and affect your ability to get a loan.

If your debt is older than that, likely, it will no longer appear on your credit report.

Making a payment, or partial payments, to a debt collector resets this clock as well.

So what do you do if the debt is too old under limitations law but is still on your credit report? You need to decide how this will impact your finances. Collection accounts will hurt your credit score and may limit access to a loan at reasonable rates. If you are not planning on borrowing any time soon, this may not matter. You can wait out the seven years for the debt to be removed from your credit report.

If you agree on a settlement, you can ask the collection agency to make a goodwill deletion. Get this in writing as part of your payment and release agreement.

Will a debt collection agency sue you to recover the debt?

We now know that if your debt is too old because it’s past the limitations period, a debt collector no longer has the legal right to sue even though they can continue to call.

But if the limitation period has not expired, will they sue?

Suing debtors costs money for lawyers and court fees. It also involves a lot of time and paperwork. A debt collector will have to consider the chances of succeeding in court and how much money they expect to recover against these costs. In most cases, if your debts are small, or if you have no income to garnishee or assets to seize, a debt collector won’t pursue legal action.

And remember, if a creditor sues you after the limitation period has passed, you have the right to file a statement of defense and argue that the debt is time-barred.

Can you get out of collections without paying?

Many Canadians believe that unpaid debt disappears at some point if you ignore it long enough, but the reality is that debt doesn’t stop existing unless you repay it. If you have unpaid debt, you will continue to owe money for the rest of your life.

This doesn’t mean, however, that you can’t get out of collections without paying. It’s a matter of understanding your financial needs and tolerance levels.

• If the statute of limitations on an unsecured debt has passed, creditors won’t have any legal means to seize your wages or go after your assets in court. If you can ignore the phone calls, you can choose not to pay.
• If the account is still on your credit report, it will hurt your credit score, but the impact lessens over time. If you don’t need access to new credit right away, you can avoid the debt collector. Remember, though, making a partial payment can worsen your score as the activity will be more current.

If you decide to make a payment arrangement with the collection agency, only offer what you can afford. Get any payment plan in writing, including a release of any unpaid amount. As mentioned, you can also ask that they remove an account from collection early.

If you are receiving calls on multiple debts you can’t afford to pay and want to consider some debt relief options, call us today.

It’s often a good idea to talk with a Licensed Insolvency Trustee before you start negotiating debt settlements. One of the disadvantages of settling your own debt is that you may not be able to get all creditors to accept a reasonable offer. Debt collectors do not have to accept any payment proposal. It may not be a good idea to pay off some creditors, only to struggle with some remaining debt. In many instances, a Licensed Insolvency Trustee can get all creditors into an affordable repayment plan through a consumer proposal. And of course, a consumer proposal also deals with debts like student loans and tax debts.

The post How Long Can a Collection Agency Collect on a Debt in Canada? appeared first on Hoyes, Michalos & Associates Inc..

Collection accounts and your credit report

If you have an account sent to a collection agency, your credit history has already taken a hit. Every month your creditor has been reporting missed or late payments to the credit bureau. Once the account goes to a debt collector, the debt is marked as a collection account.

Collection accounts significantly hurt your credit score and will do so for several years whether you pay them or not.  According to Equifax, Canada’s largest credit reporting agency, a debt in collection won’t be removed from your credit report until six years after your last payment date.

The problem with making a payment to the collection agency is that this new payment will reset how long that account will stay on your report.

To explain, here is an example:

You have an outstanding credit card bill that you haven’t made a payment on in two years; based on credit reporting rules, it will automatically disappear from your credit report in four more years.

You have the money, so you decide to pay the debt collector. Since debt collectors report activity to the credit bureaus, doing so creates a new ‘last payment date.’ Once you pay the collection agency, the debt will remain on your credit report for six more years, two years longer than not making a payment.  Even if the collection agency agrees to accept less than the full amount owing, it’s still on your credit report for six more years.

In other words, paying a collection agency can mean the debt will affect your credit score longer than not paying.

What happens if you don’t pay the collection agency?

You could simply not pay the debt. 

As I explained earlier, if you haven’t made a payment in a long time, by not paying, the debt is purged from your credit report earlier than if you pay the collection agency.

Now I don’t necessarily recommend this course of action. While the account might fall off your credit report, collection agencies don’t give up. They will continue to call, and you need to weigh the risks of whether the collection agency can or will sue, take you to court and garnishee your wages.

First, will a collection agency sue you?  If the debt is small, likely not. It costs money in legal fees to make an application to the court for a judgment (proving you owe the money) and getting a garnishment order.

Second, if the account is too old, the agency can’t sue you. All provinces in Canada have something called a statute of limitations. In Ontario, the limitation period is two years.  If you have not made a payment in the last two years, debt collection calls will continue, but they can’t legally sue you to collect.

And that’s one more reason why you should never pay a collection agency. If you make a partial payment, the limitation period starts over, so now the collection agency or your creditor has two more years to sue you in court.

What alternatives are there to not paying a collection agency?

Consider a debt management plan

If you have the money to pay the debt and want to clear it up, you could talk with a not-for-profit credit counselling agency and arrange a debt management plan. 

However, you must repay your debt in full, as this is a requirement with any payment plan through a credit counselling agency. A credit counsellor cannot settle your debt for less even if the collection agency is willing to accept less than the full amount.

A new note will be placed on your credit report when you enter into a debt management plan. This note will remain for two to three years from completion.  However, some creditors continue to report your monthly payment made through a collection agency as regular transactions, refreshing the last activity date. So the debt can remain on your credit report for six years after you complete your debt management plan. Since a DMP can be anywhere from 1 year to 5 years, that one account could impact your credit history for a long time if you go through a credit counsellor.

Make a settlement offer

If you have a single old debt and want to stop the calls, consider negotiating a settlement with the collection agency.  You can offer to pay the collection agency a percentage of what you owe and ask that the unpaid debt be written off. Depending on what you can afford and how old the debt is, start at 20 cents on the dollar and see what they are willing to accept.

Be aware that your settlement payment will update the last activity date meaning the debt will remain for another six years on your report.  To avoid this, as part of your settlement arrangement, ask the collection agency to purge the debt from your credit report right away.

File a consumer proposal

If you have a lot of debt and don’t have enough money to pay all your debts in full, it may not be a good idea to settle directly with one collection agency.  You may want to consider working with a Licensed Insolvency Trustee to negotiate a deal to eliminate all of your debts.

A consumer proposal wipes out all standard unsecured debts.  Whether or not this is a viable option will depend on what other debt obligations you have, along with other factors such as your income and any assets you may own.  However, if a consumer proposal is a viable option for you, you may be able to pay less than the full amount owing on all of your debts.

A consumer proposal is also reported on your credit report.  This note is removed the earlier of six years from the date of filing or three years after completion.  Since a consumer proposal provides a stay of proceedings, it prevents your creditors from recording payments and ‘refreshing’ the six-year purge period on your debts. This means each debt included in your proposal may be removed from your credit report sooner than with a debt management plan, and you save money by paying less than you owe.

In summary

It is important to deal with your debt. However there are times when you should not pay a collection agency:

• If you pay the collection agency directly, the debt is removed from your credit report in six years from the date of payment.
• If you don’t pay, it purges six years from the last activity date, but you may be at risk for wage garnishment.
• Through a not-for-profit credit counsellor, you can pay in full immediately, but the debt may not be removed until two to six years after you complete your DMP.
• If you qualify, you can file a consumer proposal, pay less than the full amount owing, and the debt will be removed from your credit report no later than 3 years after completion.

As you can see, it does not always make sense to pay a collection agency.

If you are struggling with debt and want to stop the collection calls, contact a Licensed Insolvency Trustee like Hoyes, Michalos. We will review your debts and budget during a free consultation and help you determine the best way to deal with your debt.

The post Why You Should Not Pay a Collection Agency appeared first on Hoyes, Michalos & Associates Inc..

If you want to know more about handling the calls and talking to a collection agent, read our tips on dealing with collection agencies.

Calls and contact – when, how often, who, what can they say

What times can a collection agent call me?

Most provincial rules say that a debt collector can only call you between 7 AM and 9 PM Monday through Saturday and Sundays from 1 PM to 5 PM.  Weekday hours in some provinces are extended to 10 PM.

Debt collectors are not allowed to make phone calls on statutory holidays.

How often can a debt collection call me?

Not all provinces have specific rules regarding the number of times a collection agency can contact you. In Ontario, agents can only email, leave a voicemail or speak with you a maximum of 3 times a week after they have initially spoken with you. If you have never answered, however, this rule does not come into play. This is why, if you have an account in collection, you may experience a Robo-dialer calling you every day at different hours of the day.

There are also rules against undue harassment. If you feel the frequency of calls is excessive, you can file a complaint. We’ve provided the contact information on where to file a complaint at the end of this guide.

Can a collection agent call my cell phone?

You have the right to ask a collection agency to stop using any form of communication that requires you to incur costs. Because cell phones come with usage and data costs, you can demand that they no longer call your cell phone number. A collection agency is also required to reimburse you for any costs you incur if you ask.

Can I ignore collection calls?

No law states you must answer or talk with a debt collector. You are free to ignore the call or hang up. However, neither the debt nor the calls will go away on their own.

It is best if you deal with collection agents in a forthright and professional manner. If the debt is not yours, tell them that. If you can’t afford to pay or the debt is too old (see legal actions below), give them a simple explanation and say you will not be paying.

If your debt is large, or you have other debts you cannot afford to pay, you may want to review your debt relief options to eliminate debt.

Can a collection agent call my employer?

A debt collector can contact your employer to confirm your employment, get your telephone number or address or enforce a wage garnishment. 

When contacting your employer, a collection agent is not allowed to discuss any personal details regarding your debt.

Can a collection agent call my friends & family?

Generally, collection agencies can only contact someone you know to obtain your phone number and address. They must not reveal any information about the name of the debt collection agency or your debt. Again, be aware of the harassment rules if they are phoning someone you know multiple times.

The only exception is if someone has co-signed or guaranteed your loan. A collector may call them if the agreement you signed with your original creditor provides that permission.

Can a collection agent come to your house?

In theory, yes, this can be a form of contact. However, agents are typically paid a commission, so they rarely spend the time necessary to make a “house call”. Robocalls are cheap, so they are the preferred contact method.

An exception may be finance companies collecting a larger debt and a creditor who may have a lien on your household furniture. If you fall behind on secured payments, a creditor or their designated collection agent can come to your home or workplace to seize property.

Can a collector set a deadline for payment?

If the collector offers you a settlement, they can provide a reasonable timeline for you to accept their offer. Collectors cannot, however, use excessive or unreasonable pressure to get you to make a payment. 

Collectors often like to say something like “If you don’t make a payment this week, we will garnish your wages.” An action like that takes time, including providing you with written notice and a trip to court.

A new tactic is for bill collectors to threaten you with an involuntary bankruptcy. Again, this is rare in the case of personal debts. Debt collectors generally use these tactics as threats only. Do not let a collection agent pressure you into a bad settlement agreement or action you do not want to take.

Can two collection agencies call me for the same debt?

No. A debt can only be placed with one debt collection agency at a time. You may receive a call from more than one agent at that agency, however. Confirm the name of both the agency and the agent before discussing your situation. Obtain proof that they are authorized to collect on the debt before making any payment. If you are unsure, contact your original creditor.

Payments

How much can debt collectors ask for?

Collection agencies step into the shoes of the original creditor when collecting a debt. It does not matter whether they are working on behalf of your creditor or they have purchased your debt. Their rights to collect are no more than is allowed in the contract or agreement you signed. They can only collect as much as the original creditor could collect.

Can a collection agency charge interest?

The collection agency can charge interest only under the terms allowed by your original creditor. They cannot raise rates beyond what is allowed in your contract.

Can the debt collection agency charge me a collection fee?

A debt collector cannot charge you for collection costs, including legal costs, unless such a clause was in your agreement with your creditor, or they get a court order. If you make a payment arrangement with the debt collector, they may charge a fee for bounced cheques; however, this fee must be previously disclosed and reasonable.

Can the collection agent settle for less than the full debt?

Only if they have authorization from the original creditor to do so.

Before you enter into a settlement agreement, do two things: get the agreement in writing and ensure they have authorization from the creditor to erase your entire debt for a paid settlement amount.

Should I pay my creditor or collection agency?

This depends. If the debt was sold, no. The collection agency now owns the debt, and you can only make payment to them. Even if the collection agency is working on behalf of your creditor, we generally recommend making payment arrangements through the authorized collection agent to avoid confusion.

Legal actions

How long can a collection agency collect debt in Canada?

There are no time limits to how long a collection agency can contact you to request payment. There is, however, a limitation period during which they call to pursue legal action to enforce payment. In Ontario, for example, a debt is considered too old two years from the date of the last activity.  This means that while a collection agency can call you for a 10-year-old debt, they cannot, for example, obtain a wage garnishment for this debt.

Can a collection agency take me to court?

A collection agency could sue you if the original creditor had the right to do so. However, this takes time and money, so an agency is unlikely to take you to court for a small debt.

If the debt is beyond the statute of limitations, you can also defend the lawsuit by saying that the debt is beyond the statute of limitations for your province.

Can a debt collector send me to jail?

No.  This is a common threat that collectors might use. You cannot go to jail for an unpaid debt in Canada. If your debt collector threatens you with this, file a complaint.

If the debt arises out of fraud, your creditor or collection agent may decide to have you charged criminally if they feel this is warranted.

What is the minimum amount a collection agency will sue you for?

While there is no hard-written rule, most agencies will not pursue legal action for debts under $3,000.  They must also believe you have sufficient income to be able to pay and will not likely sue you for a debt that is past the limitation period (although they may threaten to do so).  The agency must have sufficient documentation to satisfy the court that the debt is valid, and that they have the right to collect.

Can a collection agency freeze my bank account?

If your original creditor had the right to ask the court for an order to freeze your bank account, your collection agency has this right as well. Whether they will or not depends on the size of the debt since this involves going to court. If the debt is old, the limitations period applies to stop this type of action as well.

Can a collection agency garnish my wages?

A collection agency can apply to the court for an order to garnish your wages the same as your creditor. They must first obtain a judgement order from the court before asking for an order to garnish your wages. If the debt is small or old, the collection agency is unlikely to take this action as it involves legal fees.

Can a debt collection agency garnish pension income?

No. While the Wages Act allows for the garnishment of wages, the pensions act in most provinces does not have such a provision. In other words, there is no law permitting a creditor, or their legal designate, to garnish pension income. The only exception to this rule is the CRA, who can garnish CPP, child tax credits or other government payments if you have not paid taxes.

Can a collection agency repossess my property?

Creditors can take action to seize your property without the need of a judgement for secured debts. A landlord also has the right to seize property for unpaid rent. If a collection agency is collecting on behalf of a secured creditor, they can take action to repossess property related to the loan.

That means they can repossess your vehicle if collecting on a car loan, or take back household goods like a furniture or tv if your loan or lease agreement allows. You will be notified of such action.

Can a collection agency take my RRSP?

Whether creditors can access your retirement savings depends on where those savings are.

Creditors cannot seize Registered Pension Plans (RPP) except if your debt is owed to the Canada Revenue Agency.

The Bankruptcy & Insolvency Act protects RRSPs in the event of bankruptcy, except for contributions made in the last 12 months. If you have not filed for bankruptcy, you do not receive this creditor protection.

Some provinces have specific legislation protecting some registered plans outside of bankruptcy. This area is sufficiently complicated that you should discuss the situation with a Licensed Insolvency Trustee.

Can a debt collector take my CERB or CRB benefits?

The new Canada Recovery Benefit (CRB) (previously CERB or Canada Emergency Response Benefit) provides income support to individuals who have lost income due to COVID-19.

Under current legislation, Canada recovery benefits are protected from creditor actions. They cannot be assigned as security for a loan and cannot be garnished or seized by any creditor, including the Canada Revenue Agency.

Credit reports

Do collection agencies report to the credit bureau?

Your original creditor will report your debt activity to the credit bureau, including any late payments. Once your debt is in collections, the debt will show on your credit report as sent to collections. Some collection agencies will report continuing payments if you go on a payment plan.

Watch for collection agencies falsely reporting a payment to your credit bureau to begin the six-year clock for when negative payment information is removed from your report. If this happens, contact your credit bureau to correct any error on your credit report. You can also file a complaint with both the provincial legislator and your original creditor, assuming the agency is working on their behalf.

How long does an account remain on my credit report?

Accounts in collection have a negative impact on your credit score and remain on your account for six years from the date of your last payment.

Once the account is paid, either the collection agent or original creditor will report the account as paid or settled. As part of your settlement agreement you can ask that the collection agency remove the item from your credit report. Get this in writing as part of your release agreement.

What should you do if you are being pestered by a collection agency?

How to file a complaint with the ministry of government and consumer services

If you feel the collection agency disobeys any of these rules or is harassing or threatening you, you can file a complaint with your provincial consumer affairs office. Here are links to federal and provincial consumer protection legislation resources.

If you believe a collection agency is harassing you, keep a record of the call’s time, date, and frequency. If you decide to make a formal complaint against the collection agency, you will require this information.

Where can I get help with debt problems?

Ignoring collection agent’s attempts to contact you will not help you solve your debt problems. If you do owe money and need help forming a plan to settle that debt, contact a licensed professional for a free, confidential consultation on reducing your debts and stop the calls for good.

It may not be in your best interest to pay the collection agent. If your debts are significant, talk with a trustee before agreeing to anything.

The post What Can A Collection Agency Do to Me? Top Collection Rules appeared first on Hoyes, Michalos & Associates Inc..

The Canadian government offered temporary travel loans of up to $5,000 to help Canadians trapped outside of Canada due to COVID-19 either return home or shelter in place.

The program was managed through Global Affairs Canada with specific repayment terms. Loans were interest free and repayable within 180 days. Payments could be made in a lump sum or by installment. When granted, Global Affairs noted that ‘overdue accounts beyond 180 days will be referred to Revenue Canada Agency (CRA) for collection’.

Global Affairs, through their COVID-19 Loan Recovery Team, has begun to send out default notification letters to recipients who have passed the 180-day deadline:

COVID‐19 Emergency Loan Statement of Account 30 days

Loan Balance: CAD XXXXX

Our records indicate that you have a balance due of XXXXX to the Government of Canada for the loan you have received under the COVID‐19 Emergency Loan Program for Canadians Abroad.

The COVID‐19 Emergency loan is an interest‐free loan that must be paid back to Global Affairs Canada. If you have not paid it in full within 180 days of receiving the initial invoice, we will notify the Canada Revenue Agency of your remaining debt to the Government of Canada. Once notified, the Canada Revenue Agency can use money owed to you by any Government of Canada department or agency to reduce or repay your remaining debt. Your 180‐day reimbursement period began on 2020‐11‐XX.

Much like CERB repayment, once these accounts are sent to the CRA for collection, loan recipients will see their future tax refunds, EI, CRB, CCB, CPP, and other government benefits withheld until the loan is repaid.

While it is unlikely that these travel loans alone will cause anyone to file insolvency, these debts are dischargeable in a bankruptcy or consumer proposal if you are filing insolvency for other unsecured debts.

What is clear is that there are still plenty of Canadians who continue to struggle to overcome the financial impact of COVID-19, and 180 days may not be enough time to repay.

If you receive such a letter, don’t panic. Contact either Global Affairs or the Canada Revenue Agency to arrange repayment.

A further word of caution. Do not take out a high-interest installment loan or payday loan to pay back these travel loans. While the loan is repayable, the government understands the continued financial strain most Canadians face and will work with you.

If you can’t repay because you also struggle with other credit card debts and loans, please talk with a Licensed Insolvency Trustee about your options to deal with all your debt issues.

The post Collection of Emergency Loan for Canadians Abroad appeared first on Hoyes, Michalos & Associates Inc..

Is that a real thing? 

Can a creditor, or bill collector, force you into bankruptcy? What is an involuntary petition, and should you be worried about it?

Not really. Here’s what’s happening.

Receiving a collection letter from a law firm

This all started with a call I received from a client after he received a notice from what he thought was a collection lawyer (it was actually from a paralegal) threatening to petition him into bankruptcy for an unpaid debt.

Here is an excerpt from that collection letter:

You have failed to satisfy the above-noted claim voluntarily, and your file has been assigned to our firm with the intention of filing an Application for Bankruptcy Order (“Application”), pursuant to section 43(1) of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 ( BIA).

We are writing to inform you due to your failure to satisfy this debt despite numerous opportunities, we are now in a position to proceed with an Application. Your failure to satisfy this claim despite numerous opportunities constitutes an act of bankruptcy, as listed in section 42 of the BIA.

A Bankruptcy Order allows for the seizure and liquidation of all your real and personal property and/assets for the benefits of all your creditors, pursuant to sections 16(3), 17, 18, 30, 71 and 158 of the BIA. Should our Application be successful, you cannot be a director of a corporation, pursuant to section 105(1) of the Canada  Business Corporations Act, R.S.C., 1985, c. C-44 and section 118(1) of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16.

Obviously, after receiving this letter, the individual called very afraid that he would be forced into bankruptcy.

Who can petition the court for a bankruptcy order?

Yes, the Bankruptcy & Insolvency Act (the Act) has a legal process for involuntarily assigning someone into bankruptcy.  If a debtor has committed an act of bankruptcy, a creditor can go to court and ask the court to force the debtor into bankruptcy.

First, section 43 (1) of the Act says one or more creditors may file in court an application for a bankruptcy order against a debtor if it is alleged in the application that:

1. the debt or debts owing to the applicant creditor or creditors amount to one thousand dollars; and
2. the debtor has committed an act of bankruptcy within the six months preceding the filing of the application.

An act of bankruptcy is defined in Section 42, which can include where you:

• cease to meet your liabilities generally as they become due
• provide a statement that you are insolvent or are unable to pay your debts
• give notice that you have suspended or are about to suspend payment of your debts

In other words, if you owe at least $1,000 and are not repaying your debts, a creditor can technically petition you into involuntary bankruptcy. However, that does not mean they will.

Real threat or collection tactic?

If you owe money, a collection agent will contact you and demand payment. If you don’t pay, a debt collector can take legal action to collect. They can take you to court, sue you and garnishee your wages. In certain rare cases, a creditor can even threaten to seize your car for unsecured debt.

However, there are a lot of reasons why threats of a lawsuit don’t work.

• If the debt is small, the legal fees to take you to court will outweigh any possible amount they could collect even if they win a judgement against you.
• If the court is aware the debt is past the Limitation Period (in Ontario, over two years since the last activity date), the court will not grant a judgement.

So when the threat of a lawsuit doesn’t work, the next step is for a debt collector to threaten you with a bankruptcy proceeding.

The debt owing, in this case, was an old Rogers Wireless bill.  The person who forwarded this email to me thinks the debt was ten years old; he had forgotten about it, hasn’t heard from them in years, and the debt doesn’t appear on his credit report (because it’s so old).  It seems that Rogers had sold the debt to a debt buyer, and it was the debt buyer who is now trying to collect.  The collection agent knows the debt is old and small, so the only threat they have left is the threat of being declared bankrupt.

This threat to petition someone into involuntary bankruptcy is a collection tactic, nothing more.

Involuntary bankruptcy – more for corporations than individuals

But is it possible to force someone into bankruptcy, as the collection agent suggests?

How often does this happen in real life?

If you are a corporation that has many millions of dollars in debt, it happens occasionally.

But, in my over three decades doing insolvency work, I don’t recall a single time where a creditor has petitioned a person into bankruptcy. I’m sure it’s happened. It’s just extremely rare for a creditor or debt collector to force someone into personal bankruptcy.

Why?  Because whenever the court is involved, lawyers are involved, and lawyers cost money.

I asked one of the most senior insolvency lawyers in Canada what it would cost in legal fees to file a bankruptcy petition in bankruptcy court. He said the minimum cost to petition a debtor into bankruptcy would be $5,000.  Why so expensive?  Because the lawyer is required to notify all interested parties (including the debtor and the Office of the Superintendent of Bankruptcy) and prepare documents to convince the judge that an act of bankruptcy has occurred.

The bankruptcy court takes these applications very seriously because the court does not want the bankruptcy process to be used for normal collection activity.  If a collection agency wants to get the court involved, the proper venue is Small Claims Court for debts of $35,000 or less (in Ontario) or Superior Court for larger debts.

The lawyer or applicant would also have to find a Licensed Insolvency Trustee willing to act in the petition.

So what are the chances that the collection agency will spend $5,000 in legal fees to collect a small debt?

There’s no chance; it’s a silly business decision.

Should you make a voluntary assignment or ignore the notice?

So, what should you do if you get one of these emails?

First, confirm that the debt is real.  If you don’t owe the debt, don’t pay it.  Often collection letters are sent to someone with a similar name to the actual debtor, or perhaps you already paid the debt.  If so, send proof to the collector that you don’t owe the debt.

If you do owe the debt, determine how old the debt is.  If the debt is past the limitation period, it is highly unlikely that the collector will commence legal action.  If the debt doesn’t show up on your credit report, you could ignore it.

If the debt is within the limitation period or harms your credit score, you have options.

If this is your only debt, you can work out a plan directly with the collection agent.  They may be willing to accept less than the full amount if you pay it in full.  You must get a written confirmation of the deal before you send them any money.

If you have other debts, paying this one debt may cause it to be reported as “paid” on your credit report, which then alerts all of your other creditors that you have money and are paying debts, which may lead to a flood of collection calls.

If you can’t pay your bills, this may not be your only collection action. If you have significant debts, I suggest you talk to a Licensed Insolvency Trustee to review possible debt relief options.

A consumer proposal can help you make a plan to deal with all of your debts. If you don’t have enough income to support a consumer proposal, you may want to assign yourself into bankruptcy voluntarily as a last resort. You want to file bankruptcy if you need protection from your creditors. A false threat is not something you need to worry about, however.

Receiving an email like this is very stressful, but if you understand the process and know your options, you can make a plan to deal with all of your debts and get a fresh start.

The post Can A Debt Collector Force You Into Involuntary Bankruptcy? appeared first on Hoyes, Michalos & Associates Inc..

If you are receiving collection calls, it’s essential to understand your rights when dealing with a collection agency. In this guide to debt collection laws in Ontario, we explain the rules a debt collector must follow when contacting you, and when you may be better off not paying a debt collector.

How debt collection laws work in Ontario

If you are unable to pay back a debt, the company you owe money to may send the outstanding debt to a collection agency. A collection agency is a company that creditors hire to recover debts that are past due. Debt collection agencies and debt buyers also purchase debts that are in arrears, so they may be calling you on their behalf rather than for your original creditor.

In Ontario, collection agencies must register and follow the rules set out by the Ontario Collection and Debt Settlement Services Act. Only third-party agencies are subject to these regulations, not your original creditor’s internal collection department. For example, your local plumber can call to collect without being registered. Similarly, if a company purchases an old debt, and calls you because they now own that debt, they also do not need to be registered.

Collection agencies earn a fee paid by your creditor for their collection service, usually a percentage of the amount collected. The objective of a debt collection agency is to collect as much as possible because the more money they receive from you, the more they earn.

Any type of debt can be assigned to a collection agency, including a bank loan, car loan, credit card debt, cell phone bill, utility bill, small business accounts payable, even a judgement debt under a lawsuit.

If you don’t pay off what you owe, collection agencies can become aggressive when it comes to getting back the money. If you don’t pay them, a collection agency can sue you or impose a wage garnishment to pay off the debt.

There are strict laws in Ontario that regulate what a debt collection agency can and cannot do, all designed to control the procedures a debt collector can follow when contacting you or anyone you know.

Initial contact

Collection agents in Ontario can’t just start calling you. Before they call, they are required to send you a letter by snail mail or email which must contain the following information:

• The original creditor who held the debt
• How much you owe
• The type of credit (for example, credit card debt or car loan)
• The amount of debt on the date it was first due, and, if different, the current amount owing
• The name of the debt collection agency, including their contact information
• Confirmation that the collection agency is registered in Ontario
• A statement that the collection agency will provide a detailed breakdown of the current amount owing if requested
• A consumer disclosure statement providing information about your rights and how to file a complaint if you feel the collection agency has broken the law.

There is then a 6-day waiting period before they can call to collect the debt that you owe.

If you do receive a letter or email, we suggest debtors do not rush to contact the collection agency. During the 6-day waiting period, the collection agency is not actively doing anything on the account. This period gives you time to collect your thoughts and determine what options you may have.

If you have not received the written notice, the collection agency or collector must resend the notice to you at the address you provide and no demand for payment or another attempt to collect payment of the debt can be made until the sixth day after the day the notice is resent.

If a collection agency calls you and you have not received a letter they are only permitted to confirm your identity, advise you that they will send details of the debt to you and advise you that they will contact you again 6 days after they have mailed the letter to you. They are prohibited from discussing the debtor demanding payment until they have sent the letter and waited the 6 days unless the consumer invites or authorizes the agency to discuss the debt.

What can collection agents do and not do

Calls from debt collectors can leave you feeling stressed. That’s normal. Ontario debt collection regulations ensure that debt collector tactics do not cross the line into harassment and intimidation.

Under the Collection and Debt Settlement Act an agency cannot threaten legal action in communication with a debtor without the prior written authorization of the original creditor.

Some collection agencies send out “Draft Statement of Claims” that appear they have been issued by the court. This is against Ontario regulations. In almost all cases there is print somewhere on the document that stated “Draft”.  We recommend you photocopy this letter and send it to the Ontario regulator at Consumer Protection Ontario and as well to the Law Society under complaints.

Debt collectors can sue you but applying to the court is costly which is why collection agencies rarely commence legal action. If you do not have a source of verifiable income or a home, they will most likely not pursue you through the courts. Also, government cheques such as Ontario Disability Support Program, Ontario Works or Canada Pension cannot be seized by a collection agency.

How often can debt collectors call you?

Debt collectors in Ontario are permitted to contact you between the hours of 7 am and 9 pm Monday to Saturday and 1 pm and 5 pm on Sunday and cannot contact you on statutory holidays.

After you speak to an agent for the first time, debt collectors can only contact you a maximum of three times in seven days without your express consent for more frequent contact. However, the debt collector must speak to you on the phone, leave a voicemail or send an email for it to count as proper contact. If you don’t answer and they do not leave a message, they may use a robo-dialer to call your number over and over again.

While they can be persistent, any discussion must be civil. They are not allowed to threaten you or use unreasonable or offensive language.

Cell phone communication

It is not uncommon today for someone to only use a cell phone for communication. Unfortunately, this can come with data and calling charges. If you notify a collection agency or collector that a particular method of communication causes you to incur costs, or if the collection agency or collector otherwise becomes aware of that fact, the collection agency or collector cannot continue to contact or attempt to contact you using that method of communication. You are under no obligation to prove that a cost is incurred to stop communication this way. The collection agency is required to reimburse you for any costs if you request repayment and provide proof.

Who else can they contact?

A debt collector can lawfully contact your friends, family, spouse or neighbour in Ontario, but only to find your contact details or if you have given permission in writing or the person has guaranteed payment of your debt. It is very common for creditors and debt collectors to demand payment from cosigners.

A debt collector can contact your employer without your permission to confirm your employment status. They can also call to inquire about the status of a court order for a wage garnishment, which requires automatic deductions from your salary.

How much can they ask you to pay?

You are only required to pay up to the actual amount of debt owing. Debt collection agencies in Ontario are not allowed to charge you any extra fees. There is an exception for Provincial Offences fines owing to municipalities. Collection agencies can add a fee where the municipality permits.

If you ask, the debt collector must also provide a breakdown of the current amount owing. For example, you can ask how much the original loan amount was, how much of the balance is interest, the interest rate, fees, penalties and costs. This is essential information to ask if you are thinking about offering a debt settlement amount. I’ll discuss more on offering less than you owe to a debt collector later in this article.

Debt collector vs debt settlement consultant

A 2015 change to Ontario’s debt collection laws required debt settlement companies to register as debt collectors. While they must register under the same Act, debt settlement companies are not debt collectors. A debt collector works on behalf of the creditor. A for-profit debt settlement company helps you negotiate a debt settlement agreement with a creditor to pay less than you owe.

Debt settlement companies are allowed to charge you a maximum of 15% of each payment plus a one-time fee of $50 per account for the services they provide to you. While debt settlement agencies can no longer charge debtors a hefty up-front fee like they used to, there’s still no guarantee that the average indebted consumer will be safe from predatory debt settlement practices.

To clarify, a Licensed Insolvency Trustee is not required to register provincially as a debt collector. LITs are licensed and registered through the federal government. We cannot charge any additional fees for services other than the prescribed fees permitted under the Bankruptcy & Insolvency Act. These fees are taken out of your consumer proposal or bankruptcy payments, before payments to creditors.

The time limit for debt collection in Ontario

In Ontario, the statute of limitations for standard debts, like bank loans and credit cards, is two years. After this time, a collection agency can no longer sue you or pursue legal action to collect on a past-due debt. Be careful not to acknowledge the debt when talking to a debt collector as this can start the two-year clock over again. The courts have been clear on this issue. The 2-year limitation is restricted to the date of last payment.

Dodging your debt might seem like a great plan, but even if two years have passed, it does not mean the debt will vanish. You still owe the money, and debt collectors can continue to contact you for payment even if they can no longer sue.

Running away from your debts will also negatively affect your credit report and credit score for much longer. Late payments, defaults and accounts in collection remain on your credit report for six to seven years (depending on the credit bureau) from the date of your last payment.

The two-year limitation period applies to unsecured debts. Secured creditors (like mortgage and car loan lenders) can enforce their security rights at any time, and the prescribed limitation period in the Income Tax Act in Canada for Canada Revenue collections is ten years.

Dealing with a collection agency

Debt collectors can be intimidating, and repeatedly receiving calls from a collection agent can almost feel like harassment. Unfortunately, you can’t just shut your eyes and wish the calls away.

If the debt is yours, before you talk with the debt collector, you have some decisions to make:

• Can you afford to pay back your debt in full?
• Can you afford a partial payment or settlement?
• Should you pay the debt collector or talk to a credit counsellor or Licensed Insolvency Trustee first?

If you are in a financial position to make payments on the debt we suggest that you attempt to negotiate a payment arrangement with the collection agency. You can offer to pay the amount at once or in installments. Whatever you do:

• Only offer what you can afford
• Get any agreement in writing
• Never send cash or gift cards as payment

If you negotiate a payment plan with a collection agency you should, as part of the agreement, have them in writing acknowledge that if payments are made on time they will remove the collection item on your credit report once the debt has been paid in full.

You can read more tips and tricks on dealing with collection agents here.

If you can’t afford to repay the debt, tell that to the collection agent and explain why, but don’t be bullied into making a partial payment that doesn’t fully solve your debt problems.

Reasons to not pay a collection agency

It’s only a good idea to pay a collection agency if it’s in your own best interest. If your debt is small and affordable, and you just want to clean up your credit score or stop the calls, then pay it. However, there are reasons not to pay a collection agency.

The credit bureau purge policy – As mentioned, collections accounts, whether paid or unpaid, remain on your credit report for six years from the last payment. Once this time is up, a debt will be automatically purged and will no longer appear on your credit report for future lenders to see.

Making a payment to a collection agency can start this clock over. If you are close to the end of the purge window and it’s a small debt that you are unlikely to be sued for, you might be better off ignoring the calls and not paying the collection agency.

We recommend you get a free copy of your credit report to check your date of last payment. Some less reputable collection agencies and debt purchases may knowingly report an account in collection on a credit report well beyond the 6-year purge period. They do so to force the consumer to contact the credit bureau to have the item removed or to offer a settlement.

If it’s an old debt – This is similar to the purge policy. If a debt is past the limitation period where a collection agent can no longer sue you, and you can live with the hit on your credit, you can ignore the calls and you can choose not to pay and move on.

If you have ‘too much’ debt – If the debt is too large or multiple collections agents are calling you because you have too much debt, it’s better to make a plan for all your debts and not try to deal separately with several different collection agents. This is where a consumer proposal or personal bankruptcy might work for you and stop the collection calls altogether.

Options for settling with a collection agency

Sometimes you can negotiate a deal with a debt collector yourself.

It’s very important to do this carefully and make sure that when you settle with a collection agency, your settlement has legal validity. You need to feel confident enough to approach your debt collectors and be aware of your rights. 

If you believe in your persuasion skills, your creditors may agree to settle for pennies on the dollar. If your debt is old and in collections, you stand a better chance at negotiating a good settlement amount.

A successful negotiation with a collection agency involves many steps:

1. Determine how much you can afford to repay
2. Rehearse your ‘story’
3. Be aware of your rights and the legality of your settlement
4. Stay composed and do not be afraid to hang up if things get nasty
5. Write everything down as you go so you remember what both sides said
6. Get the final agreement sent to you in writing
7. Make sure you can 100% keep up with your repayments, or else all your hard work could be undone

While it is feasible to negotiate and settle with your creditors, debt collectors or a collection agency on your own, this doesn’t mean it’s the best option.

Alternatives in Ontario to dealing with collection agencies

You can decide not to pay your debt at all, but for a lot of people, that’s too stressful. The lender or creditor may decide to pursue legal options, like a wage garnishment, or you may be tired of juggling one debt payment for another.

You want to get out of debt and learn how to manage your debts and get your finances back on track. If you are in debt but want to avoid dealing with a collection agency, you can:

• Arrange a Debt Management Plan – With the help of a not-for-profit credit counselling service or agency, you can arrange a DMP. This means that if you have the money, and you want to clear your debt up, you offer to pay the debt in full over a period of time (usually years) by way of monthly payments. A credit counselling agency will charge you a 10% fee on top of the amount owing.
• File for a Consumer Proposal – If you don’t have the funds in full, there are still alternatives to a partial payment with a collection agency. A consumer proposal is a legally binding debt settlement agreement to repay your creditors a percentage of what you owe in exchange for full debt forgiveness. A Licensed Insolvency Trustee helps you negotiate a settlement offer and their fees come out of the amount paid to creditors. You pay only the agreed settlement amount.
• File for Personal Bankruptcy – Sometimes, declaring bankruptcy is the best way to deal with your debt and get debt relief. Personal bankruptcy is a legal practice designed to help an honest but unfortunate debtor who cannot afford to repay their debts. Debtors assign their rights to non-exempt assets for the benefit of their creditors in exchange for which they are released from unsecured debts. At the end of the bankruptcy, your debts are legally discharged, meaning you are no longer required to pay them back, and you can have a ‘fresh start’.

At Hoyes, Michalos and Associates, we are proud to be a team of understanding experts, trained in all of the different Ontario debt relief options.

Meet with a licensed insolvency trustee who will ask you all the important questions about your income, budget and debts to help you plan for the best outcome.

If you want a team of professionals to deal with your debts for you, who understand all there is to know about Ontario debt collection laws and how to stop debt collection calls for good, then all you need to do is give us a call or send us an email, and we can get started.

The post Guide to Ontario Debt Collection Laws appeared first on Hoyes, Michalos & Associates Inc..

I outline what happens when a collection agency takes you to court and what you can do to stop the court proceedings and stop collection actions.

How debt collectors obtain files

There are two ways debt collection agencies obtain accounts of unpaid debt – either through assignments or they buy files.

Assignment of a debt means that a lender, like a bank or credit card company, has hired the collection agency to collect money on delinquent debts. In assignments, the collection agencies receive a commission, usually 30% of the debt they were able to collect on behalf of the bank.

Another way a debt collection agency can obtain unpaid debt accounts is by buying them. Lenders that are no longer trying to collect a debt will sell their debt accounts to a collection agency willing to buy them. The collection agency will then own the debt and begin contacting the debtor to recover money. This is often the case for very old debts which can explain why you may be receiving calls and collection demands from a debt collector after years of no contact.

Will a collection agency take me to court?

A collection agency is a business. Suing you will cost money on lawyers and involve time spent on paperwork, so it must be worthwhile for the debt collector to take you to court. Whether a debt collector will sue you ultimately depends on whether you have assets or earn a good income.

Read Transcript

There are a few reasons why a collection agency will only threaten to sue, but not follow-through on taking real legal action:

1. Your debt is too small. Most large creditors will avoid lawsuits where an unpaid debt is below a certain dollar amount. The reason being they don’t think it’s cost-effective to go after a loan of only a few hundred dollars when they will be spending that amount on the legal action alone.
2. You are considered creditor proof. If you don’t own any assets or you do not have income that can be garnisheed, it’s not possible for debt collector to recover any monies from you even if they take you to court.
3. You live outside of Canada. If you owe money to a Canadian creditor, it’s highly unlikely that you will be sued while living abroad, even if you still receive phone calls from Canada. The primary reason for this is that your creditor would have had to first sue you in Canada and then have to bring the lawsuit over to your current country of residence. As this can be a complicated process, Canadian creditors generally don’t sue you if you live in another country.
4. Your debt is too old. Technically debt obligations never expire, and debt collectors can attempt to collect the debt for as long as they want. However, every province in Canada has a statute of limitations on most unsecured debts which prevents creditors and debt collectors from successfully taking legal action after a specific amount of time has passed. This is sometimes also called time-barred debt because it is no longer legally collectible after a certain number of years have passed. In Ontario, the statute of limitations is two years. If a creditor does sue you after the two-year period, you can file a Statement of Defense saying the debt is past the limitations period.

So how often do debt collectors take people to court?  Rarely. The debt collector will only sue you through the courts if they expect to collect more in fees than they will incur in legal and court costs.

What happens during the court process for debt collection?

The debt collection process for late payments generally follows three stages.

Initial collection attempts

In stage one, your creditor or collection agency will attempt to contact you to arrange a new payment plan. If your account has been transferred or sold to a collection agency, they must first send you a written notice indicating what agency they work for, the name of the original creditor, account number, when the account was transferred and the amount you owe.  Five days after sending this notification they are legally allowed to call you. The longer your account is overdue, the more aggressive you can expect creditor calls and letters to become.

Court proceeding & defense

If a creditor or collection agency decides to pursue you financially through the court system, they will send you a notice of legal action or statement of claim.  You have 21 days from the time this claim is mailed to dispute a debt or accept the claim.

If you do not respond with a Statement of Defense within this time period or attend the trial, the court will likely rule in favor of the creditor.

If you do owe the specified debt and do not present an appropriate defense, the judge will likely sign a Judgement Order.  This is an order indicating that the court acknowledges the debt is legally owed by you and gives the judgment creditor the legal right to pursue other means of collection.

Pursuing legal recovery options

If the collection agency wins the case and receives a default judgment against you, they will take steps to recover the debt including:

• Request that the court to issue a garnishment order so they can garnish your wages;
• Freeze your bank account and issue a demand to your bank that any monies deposited in your account be directed to them.
• Obtain a Write of Execution allowing them to seize non-exempt property which they will sell to repay the debt. It is even possible for unsecured creditors to attempt to seize your car for an unpaid debt.
• File a lien on your property which will remain and must be settled prior to any sale.

What do I do if I have a judgment against me?

Make a settlement offer or create a repayment plan

If you can afford to pay the money owed, you can still make a settlement arrangement directly with the debt collection agency. Based on your financial situation, you can start with a partial payment then work out a monthly payment plan. Make sure to get all agreements in writing.  If the debt is old, or if the agency has purchased the debt for cents on the dollar, you may be able to make an offer for much less than you owe.

File for consumer creditor protection

If a creditor or debt collector has proceeded to file a lawsuit and obtained a judgment against you, you are likely at the stage where you cannot afford to repay the debt.  You may also have other debts that are causing you financial problems.

You can stop these legal actions by filing a consumer proposal or bankruptcy.

Both options provide a legal stay of proceedings. A stay in bankruptcy or consumer proposal means that unsecured creditors and debt collectors are prohibited from launching or continuing lawsuits. The stay is automatic and happens as soon as you file.

While in many cases a collection agency is only threatening a lawsuit, if your debt is not past the limitations period and you own assets or earn an income, it’s very likely that the debt collector will pursue you in court and obtain a judgment against you. If you’ve received written notice of a court application, act before facing garnishment, a bank account freeze, or a lien on your property.

Contact us today to meet with an experienced trustee who will take the time to review your debt situation and explain all of your options to stop any collection actions and deal with your debt. Your first consultation is always free.

Tune in to the podcast episode below.

Transcript

Doug:                We’ve had a lot of long shows recently so today we’re back for a quick Technical Tidbits Edition of Debt Free in 30 where we answer one question from our listeners. Today’s question, can a collection agency take me to court? Pretty simple, so Ted Michalos, my Hoyes Michalos co-founder and business partner is here. So Ted, to start is being sued by a collection agency something to worry about?

Ted:                  Right. So I’m going to describe it as they have the legal right to do it but it’s not something they do very often. So it’s a question about perception versus reality, what do they do in practice versus what are they going to threaten you with in their cover letters or emails.

Doug:                So you talk about threatening. How often have you had a client sitting in front of you who’s said I’m getting these calls from a collection agency and they’re going to take me to court?

Ted:                  What time is it?

Doug:                Yeah, exactly, right. All the time it’s a very common thing.

Ted:                  Anyone who’s dealing any way with collection agency’s it’s the most common thing they do. You’ve got to pay me by Friday or I’m taking you to court.

Doug:                Okay, so let’s start with the basics here then because I think once everyone understand how a collection agencies work the answer to this question is pretty easy to understand. So there are two ways that collection agencies get debts to collect, they’re either assigned them or they buy them. So what’s the most common of those two scenarios?

Ted:                  So the most common one is the assignment. And what that means folks is that a company, a big bank, a utility, whomever it is, hires the collection agency to do the dirty work for them. So the Royal Bank doesn’t want to be calling you trying to collect your debts, they don’t want to hassle you but they would like their money back. So they will assign the debt to a collection agency that’s working on commission to try and recover the money.

Doug:                That’s working on commission, so that’s how it works then.

Ted:                  Right. Well and a critical component of that is so they only get paid if they collect some money. And so the decision for them well, do they take you to court? Well they certainly threaten it but unless they’re certain that they’re going to get paid or the bank is authorized them to spend the money they’re not likely to do it.

Doug:                So let’s talk through the sequence here. I’ve got a credit card with a big bank and something happens that I’m not able to pay it. So, the first month I miss my payment there’s going to be a note on the statement that says hey, you probably forgot to make a payment.

Ted:                  It’s a polite reminder the first time.

Doug:                A polite reminder, no big deal.

Ted:                  Unless it’s a US credit card then it’s less polite.

Doug:                Okay, so then the second month I’ve missed a payment it’s much less polite, it’s a more forceful –

Ted:                  Usually the second month there is an individual letter or notice and possibly there’s a phone call even from Canadian banks.

Doug:                And by the third month okay they’ve –

Ted:                  Now the third month they’re losing patience with you. And they’ve got to decide do we continue to contact you, which is bad for our business relationship or do we hire somebody else to be the nuance?

Doug:                And so very common that around month three, four, five six, they make the decision you know what, this isn’t salvageable we’re sending you to a collection agent.

Ted:                  Yep and they’re tax implications for them too, right? Now they’ve sent it off to collections, it’s now doubtful, there’s a basis for them sending some of this off for their taxes, even if you do pay them, it’s an accounting thing but there are reasons for doing it.

Doug:                So somewhere let’s day it’s month four, five or six, I get contacted by a collection agency so that would be what we call the first hand off and that collection agency is dealing with a warm body, you were current up to a few months ago so the commission they’re going to earn it’s not a huge commission because it’s a relatively simple debt to collect, so I don’t know what they get, I’m not privy to this but maybe it’s a 10%, 20%, 30%.

Ted:                  I think it’s 30.

Doug:                So let’s say it’s a 30% commission. So the collection agency is calling you, they want to collect their money and you said it’s unlikely they will take you to court because of math. They’re only going to get 30% of the money and it costs them something to take you to court.

Ted:                  Yep and they’re not sure that you’re actually going to pay. So I mean there’s some candidates that are better to be taking to court than others. You got a high paying job, they know you’ve got lots of assets or something, but these are people that usually have paid their bills.

Doug:                Right. So, if I’m a collection agency I don’t want to pay the court fee, because to sue someone you got to pay a court fee.

Ted:                  Plus there’s the time of preparing the documents and all that work.

Doug:                Lawyers fees, I probably have to serve you with the documents, so maybe it costs, I don’t know, a couple of hundred bucks, a few hundred bucks, whatever it is, to go the court process. And if I don’t collect I’ve just wasted that money and if I do collect I’m going to get 30% of it because that’s the deal I have with the bank, that’s why collection agencies typically are not going to take you to court.

Ted:                  Right, it’s just not likely.

Doug:                It’s just not likely.

Ted:                  And think it through folks, the courts are already backed up with the collection agencies at most suing, I don’t know, one out of 20 people, I don’t know, I don’t even think it’s that high. So if they sued everybody can you just imagine how long it would take?

Doug:                Well and I think collection agencies when they are collecting on behalf of a bank sue virtually no one. It’s highly unlikely; I think it’s probably more like one in 10 thousand as opposed to it’s a small number. Now there’s a second scenario though and that is where an agency has purchased your debt.

Ted:                  And this is more common than you might think but they’re always blocks of old accounts. So I’ll give you an example, Canadian Tire every month will put together a block of old accounts, things that they’ve given up on, and they sell them for what, three, four cents on the dollar? They get companies to big on buying them. And once those companies buy those debts then they have the right to try and collect on them. Now there are some complications under the law for these things but those are the guys that are more likely to sue.

Doug:                Okay, so let’s break that down and we used that company as an example but we’ve seen it pretty much with every company, every bank, every credit card company.

Ted:                  Everybody does it.

Doug:                So they’ve decided you know what, we can’t collect it. So the normal sequence of events would be the original bank, the original credit card company, takes three to four months tries to collect, doesn’t get anywhere, they send it to a collection agency, they don’t get anywhere it comes back. At some point they say you know what, maybe it’s been a year, maybe it’s been two years, we haven’t collected, we don’t think we’re going to collect, let’s see if we can sell it to someone.

                          So a debt buyer comes in and says great, I will take all of your accounts that are between 18 months and two years old or whatever. And we’ll give you three cents on the dollar, four cents, five cents, six cents, whatever it is. So if that happens does that increase the chance that they will sue you?

Ted:                  I think it increases it certainly over the ones that are assigned. I still don’t think there’s a big chance of being sued but it’s bigger than it was under the first scenario. Because now they actually own the debt, they’ve spent some money and so now they’re trying to recover money. In the first one they’re getting paid a commission so they’re not out of pocket yet, the second one they’re out of pocket, they’ve paid for something so they want their money back.

Doug:                And if they’ve paid let’s just say five cents on the dollar for it.

Ted:                  Which would be phenomenal.

Doug:                You know, and they can collect from you and get 100 cents they’ve just made a huge profit.

Ted:                  Correct.

Doug:                And so is it worth it to spend a few hundred bucks on lawyers and lawsuits? I guess that’s a business decisions that they have to make.

Ted:                  And again so they’ve got – there are some people that are more likely to be sued than others. And it kind of depends on your unique situation, if you’re on some sort of assistance or pensions, you’re not a good candidate to get sued if you are earning a decent living, you’re a single adult, much more likely.

Doug:                Yeah. And so what they assume do, and this is all speculation on my part because I don’t work for a collection agency, but what I would assume they do is run credit checks on everybody and go okay, let’s pick people who are a certain age range because if you’re over 80 years old the chances of you having a fulltime job that we can collect on are probably pretty slim. And let’s see if there’s any recent other history do you have other debts that are still current, what kind of job situation do you have? We pick the targets and then we go after those people.

                          Now you and I were just looking at some paperwork before we turned the microphones here of exactly that scenario. It was somebody who’s come in to see us who is getting sued for an old debt.

Ted:                  That’s correct.

Doug:                And we’re not going to mention the name of the company but it was a debt from awhile ago, a debt purchaser bought it and it is now that debt buyer who is suing them.

Ted:                  Trying to recover it, that’s right.

Doug:                Now you said something else a minute ago and that was that sometimes there’s legal complications to all of this, so what were you alluding to there?

Ted:                  There’s something in Ontario, and in every other province, they’ve just got different names, call the Limitations Act. So in Ontario the Limitations Act gives you a defence if you’re being sued and it basically says if you haven’t confirmed the existence of a debt in two years then your defence is you thought the debt was gone, I mean that’s in layman’s terms. Now confirming the debt, most people take that to mean you’ve made a payment but if they’ve got a recording of you saying yes, I know I owe you the money or something in writing, that would classify as a confirmation as well.

Doug:                Yeah, the most obvious scenario is I made a payment on it.

Ted:                  Right.

Doug:                So I wouldn’t be making a payment on it if it wasn’t. I mean talking to someone on the phone –

Ted:                  Well but one of the reasons they all tell you they’re recording calls is because it may very well be that you say yes, I know that I know you, I’m going to give you something by Friday. Okay, now I can use that against you.

Doug:                Yeah and whether they would do that in court or not, I mean we already said that the chances are pretty unlikely. But if a debt buyer has purchased debts from a couple of years ago, and it would make perfect sense for a bank or credit card company to sell them because they know I can’t really take someone to court for them because it’s too old.

Ted:                  I’ve already written them off.

Doug:                I’ve already written them off. So, you know, if I get two cents on the dollar that’s two cents more than I was getting. The debt buyer now though well, hey maybe I’ll take them to court. And so I think with the Limitations Act you spelled it out very clearly, it is a defence.

Ted:                  Correct.

Doug:                So anybody can sue anybody for anything, oh the sun’s shining today, I think I’ll sue you. So the fact that the debt is two years old doesn’t mean I can’t sue you for it.

Ted:                  Yeah, it’s not a statute of limitations saying the debt is gone, it’s saying that the court will not compel collection, that’s a whole different thing.

Doug:                Hugely different.

Ted:                  So it still shows up on your credit bureau, the debt is still there, it’s just that if you put up any kind of defence as in hey, wait a minute it’s been more than two years, the court won’t let them take anything from you.

Doug:                Now of course you have to know there’s a court hearing.

Ted:                  Right, so they’ve got to know how to find you.

Doug:                And so I mean it’s something we’ve seen many times as well where when they go to court and say well, we tried to find the guy but we sent it to his last known address, we don’t know where he is and so of course the court isn’t going to say well how old is this debt, is it passed the two year limitations period?

Ted:                  The court doesn’t care.

Doug:                The court doesn’t care. The court says okay, boom, here you go, here’s your judgment.

Ted:                  And the standards are a lot lower in small claims court, I mean you just hit on it, small claims they’re only required to send notice to the last address of record. That’s debts under $25,000, debts over $25,000 they actually have to serve you. So you’re less likely to be sued for debts – if they’re going to sue you it’ll be in the first two years.

Doug:                And we’re giving you Ontario law here, Ontario Canada as we record this in early 2019 that may be different in whatever jurisdiction you’re in. So, is it more likely you would get sued for a $5,000 debt or a $50,000 debt?

Ted:                  So if you’re going to be sued for a $50,000 debt it will be done within the first two years and it will because the creditor, whoever you owed the money to, assigned it to a law firm, not to a collection agency. If you’ve got a debt in a collection agency for $5,000 and it’s two or three years old, they might sue you, more likely they’re going to ask you to try and settle for a thousand or $1,500.

Doug:                Yeah and sometimes the lawsuit is more of a threat but it’s – if it’s a small enough amount then you’re probably not going to put up as big a defence than if it was a much bigger amount and if you owe –

Ted:                  Well, that’s one of their tricks.

Doug:                That’s the trick exactly.

Ted:                  You owe me $1,500, they’ve actually bought it for $50 but they’ll settle with you for $500, great deal for everybody.

Doug:                Great deal for everybody. So okay, so let’s summarize all this then. With respect to the limitations act in general they’ve got to sue you within two years but you have to actually show up in court and defend if they –

Ted:                  It’s an active defence; it’s not an automatic defence.

Doug:                And one of the ways to defend yourself in that case would be to get a copy of your credit report, which shows the last activity date and you go to court and you say look the last activity date was three years ago judge. Okay, so then the judge would throw it out assuming the judge knows the law, so highly unlikely that a big bank would be suing you after two years. Well, we just looked at a piece of paper of someone who’s being sued for a debt that was purchased two years ago so it’s more likely that that’ll happen. So grand summary then, the question was is it likely that a collection agency will sue you?

Ted:                  So, the question was can a collection agency sue you? Yes, they can but it’s not likely.

Doug:                And so if someone has been contacted by a collection agency who says we’re going to sue you, you owe us all this money, what advice would you be giving that person?

Ted:                  So if you only have the one debt that you’re in trouble with, and most of the people that we talk to, it’s multiple debt so we’re going to give you a different answer in a second, you’ve only got one debt you’re dealing with a collection agency, maybe you take the time to talk to them. Maybe if it’s a one off you can deal with it and probably they’ll settle. Most of the folks we talk to it’s not one, it’s two, it’s three, it’s four, it’s because there’s been a ripple effect. It’s one of those unattended consequences I haven’t been able to pay this bill, I borrowed from that one and so now you’ve got a number of different items in collections.

                          Well so the correct answer here is not to deal with the collection agency, the answer here is to deal with your debt problem, which means well, contacting someone like us. Are you going to file for a consumer proposal, maybe are you going to file for bankruptcy, maybe you just need somebody to help you sort this stuff out.

Doug:                And is your answer different if I’ve already been sued?

Ted:                  No, I mean if you’ve already been sued – again if only one person has sued you, the risk you run now is you’re going to have your wages garnisheed or your bank account frozen. But if one person has sued you probably someone else is going to make that same decision as well and so you’re already at the point where you should be seeking professional help. And that’s not just me trying to sell my services.

Doug:                Well it’s actually the truth.

Ted:                  You got a tooth ache you go see the dentist, you got a debt problem you go see someone to help you with your debt.

Doug:                So it’s fairly simple then. If you’ve got one collection agency after you and let’s say it’s an old cell phone bill, we see that all the time. So okay, it was originally $500 now they say it’s $1,000 they’re probably not going to take you to court for that but it’s also probably something you can deal with on your own, you talk to them and say look guys, how about I give you $300, let’s make a deal, whatever. And you want to make sure you do it in the right way, get them to send you a letter saying $300 is full and final settlement and all the rest of it.

                          If you have three or four of them and in most cases what they want is a lump sum, they don’t want $50 for the next two years, they want $300 right now. So if you can’t settle with all of them, then, you know.

Ted:                  What’s the point of settling with any of them if you can’t settle with all of them?

Doug:                Yeah and in fact you’d probably make it worse, you now settle with one of them and that reflect on your credit report that you paid it and now all the rest of them know he’s got money and boom you’re getting calls from everyone. So if you have multiple debts and they’re now at the collection agency stage then yes, it’s probably better to look at a bigger picture solution and deal with all of them.

Ted:                  That’s right, it just makes more sense.

Doug:                And a consumer proposal or bankruptcy will stop a lawsuit.

Ted:                  Correct.

Doug:                It will stop – even if you’ve already got a judgement against you.

Ted:                  Yeah there’s something called a stay of proceedings, it’s an automatic provision in the law, so it means that a creditor cannot advance any sort of legal situation further. So if they haven’t started it stops them from actually commencing, if they’ve already started it stops them in their tracks, if they already have a judgment against you, it stops it from being enforceable. If they’re already garnishing your wages, it stops them from garnishing your wages.

Doug:                And that’s a key point because a lot of people think well, they’re already garnishing my wages, nothing I can do now, I wish I dealt with it before it went to court. Well no, it doesn’t matter what stage it is, obviously the sooner you deal with it the better.

Ted:                  And the reasoning is this, they’re stopping that one particular creditor because the assumption is you’ve got multiple creditors. And there’s no reason why that one creditor should be treated better than everybody else.

Doug:                Everyone gets treated the same.

Ted:                  That’s right.

Doug:                Excellent. So there you go, there’s the answer to both will a collection agency sue you and can they sue you?

Ted:                  And what do you do if they’re – if you’re in that kind of situation?

Doug:                Yeah and be proactive, you know, sitting there waiting for it to go away is not the solution. Excellent, Ted thanks very much. That’s our show for today. Thanks for listening, until next week I’m Doug Hoyes, that was Debt Free in 30.

The post Can a Collection Agency Sue You in Canada? appeared first on Hoyes, Michalos & Associates Inc..

In this article we look at how CRA can attempt to collect on unpaid tax and other government obligations, what specific debt collection and seizure powers the Canada Revenue Agency possesses and what your remedies are in dealing with CRA collections as well as some tax debt relief options.

CRA collection powers

The CRA can be very aggressive when collecting outstanding tax obligations. They have several legal remedies and collection tools that can be applied, sometimes without prior notice.

The Right of Offset: Because the government has so many branches and programs you may owe money to one branch yet be owed money from another benefit area. CRA can keep a payment owing to you and apply that payment towards other government debt. For example, CRA can keep any HST credit to apply against outstanding income tax. Similarly, if you have a refund coming to you in one year, they can offset that refund and apply it towards any taxes owing from prior years. They can even garnish CPP and OAS pension payments.

Garnishment:  The federal government can issue a garnishment, without a court order, to seize any funds owed to you from someone else. That means they can freeze your bank account or issue a CRA garnishment of your wages.  They will issue a ‘requirement to pay’ to your bank or employer who has no choice but to send money to the CRA instead of you, the tax debtor.

Registering your debt: Without warning, CRA can register your debt with the Federal Court of Canada. This has the effect of confirming the amount you owe (regardless of whether or not you agree) allowing them to take further legal actions. Like obtaining a court judgement order, this makes your debt a matter of public record.

Registering a lien: Once the CRA has registered your debt, they can register that debt on title against any asset you own including your home or car creating a tax lien on your property.

Seizing assets: The CRA can seize and sell assets that you own to satisfy any outstanding debt.

CRA debt collection process

The Canada Revenue agency collects many forms of government debts for various departments including:

• personal income tax,
• payroll deductions,
• HST,
• benefit overpayments, and even
• Canada Student Loans.

Collections

Update: Due to the financial hardship faced by many during COVID-19, the CRA has issued a policy statement suspending most collection activities for outstanding tax debt. Agents were encouraged to help taxpayers make appropriate payment arrangements to avoid financial hardship. However, collection staff are expected to begin contacting individuals beginning in the fall of 2020.

When you owe money, a CRA agent will contact you by phone or email. Their objective is to collect taxes, not punish you for late payment. If you can, make payment arrangements.

 If you can’t, this is when you should contact a professional like a Licensed Insolvency Trustee before CRA issues a Requirement to Pay notice. You want to consider your financial options, including tax relief, before the CRA imposes more stringent collection actions that can affect access to your income or assets.

Audit

Confirmation of your tax liability begins with an assessment and possible audit by CRA. The purpose of this audit is to confirm whether you are properly following all tax laws, have documentation to support any deductions, have declared all income sources correctly, and are eligible for benefits or refunds.

Individual taxpayers are chosen for an audit based on a risk assessment. With the resumption of audits since COVID-19, CRA is prioritizing audits and collection based on financial criteria including looking at high dollar taxpayers and taxpayers who have an unpaid tax obligation. They are also setting up processes to conduct Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Response Benefit (CERB) audits.

During the audit process, a CRA representative can review your tax return, bank statements, business records, T4s, receipts and any other information needed to confirm or complete an assessment.

Appeal

If you do not agree with your assessment, you can file an objection and, if this does not work, appeal to the tax court of Canada. This generally requires the help of a tax lawyer as the documentation can be confusing and you want to ensure you are correctly interpreting the tax code.

Taxpayer relief requests

Assuming you do owe the money, you have a couple options going forward:

• Make payment arrangements with the CRA to pay off your tax debt over time
• Apply for taxpayer relief to request a reduction in penalties and interest
• File a bankruptcy or consumer proposal to eliminate the underlying tax debt.

Update: CRA waived all interest charges on existing tax debts from April 1, 2020 to September 30, 2020 (June 30, 2020 for GST or HST).  Interest and penalties before and after that period continue to apply but can be reduced if you can prove ongoing financial distress due to these charges.

Limitation period

The Federal Government is not subject to provincial limitations periods but CRA does have its own Statute of Limitations.

The rules are complicated, and the limitation period can be started over by certain events however in general, for individuals:

• There is a restriction for most personal tax debts against collection during the first 90 days after a notice of assessment or reassessment is issued. This gives you time to consider your financial options.
• There is no 90-day collection restriction for HST, PST or payroll deductions.
• The CRA has 10 years to legally enforce collection (6 years for payroll deductions)

If the CRA is concerned, they can apply to the Federal Court to waive the restriction period.

There are many actions that can restart the limitation period, including making or proposing a payment, filing a notice of objection, appeal or asking for a reassessment. We do not recommend you try and wait it out. CRA will certainly act to enforce any rights they have to pursue collection action long before this period expires.

How the Insolvency Act overrides the CRA collection process

The Bankruptcy & Insolvency Act, like the Income Tax Act, is federal legislation.  In most situations, a bankruptcy or consumer proposal stops the Canada Revenue Agency collection process and eliminates the debt.  There are some limited exceptions to that general rule which would be reviewed with your licensed insolvency trustee.

Take action before a lien is placed on property

If you own a house, or any other asset, you will want to settle or file insolvency before the CRA places a lien on your property. Tax liens are considered secured debt, and secured debts do not get discharged either through bankruptcy or a consumer proposal.

Confirm how much you owe

The CRA is willing to settle outstanding unsecured tax debt through a consumer proposal. However, they will first want to confirm how much debt is owing which means you will need to file all outstanding tax returns.

Canada Student Loans and CRA collection

Student loans that are in arrears are sent to the CRA for collections. Government guaranteed student debt can be eliminated through a consumer proposal or bankruptcy as long as you have been out of school for a minimum of 7 years.

CERB, CEWS, CESB collection

CERB and related benefits are considered taxable income. Many Canadians, not used to making installment or year end tax payments, are likely to face a tax bill due to CERB or CESB. The CRA will also be conducting audits of CEWS recipients to ensure they met appropriate qualification guidelines.

Income taxes due because of CERB or CESB can be discharged in a bankruptcy.

It is still uncertain how the CRA will deal with CERB or CEWS overpayments under the Bankruptcy & Insolvency Act. While tax debts can be included in a bankruptcy or proposal, debts due to fraud cannot be discharged. CRA has unofficially advised that they may treat overpayments similar to EI overpayments. That is, on a case by case basis.

Stop CRA collections

If you are dealing with more tax debt than you think you can repay, only a Licensed Insolvency Trustee has programs that can stop all CRA collection actions and eliminate your tax debt.

As mentioned, you want to act before the CRA issues a tax lien or other secured charge on your assets. Wage garnishments are best stopped before they occur, however a bankruptcy or consumer proposal can stop an active garnishment order.

Contact us to talk with a Licensed Insolvency Trustee about your situation to see what options you have to resolve outstanding CRA debts.

The post Can Bankruptcy Stop The CRA Collection Process? appeared first on Hoyes, Michalos & Associates Inc..

It’s important to know how to talk to debt collectors when they call about an outstanding debt. You need an action plan for what you are going to do and say.

At the same time, there are some do’s and don’t when dealing with collection calls.

We asked two industry insiders, Blair Demarco-Wettlaufer who on a previous show gave us insider look at collection calls, and Mark Silverthorn who revealed several “collection agency dirty tricks”, to help us create a list of top 10 tips when you are dealing with collection agencies.

Of course, if you can’t afford to repay your debts on your own, there are legal options to stop collection calls for good.

Top 10 Tips For Dealing With Collection Calls

1. Ask for proof of the debt in writing. Under Ontario debt collection laws, a collection agency is required to notify a debtor, in writing, and they must disclose the amount owed, who the creditor is, and the name of both the collection agency and the individual collection agent. A collection agency can still call you before sending a letter or e-mail, but must still offer proof of the debt in writing. 
2. Clearly communicate your dispute with the collection agent.  If you don’t think you owe the money, tell them why you dispute the debt, perhaps because you have proof that you already paid it, and that may end the matter.
3. Send a recorded notification requesting no further phone calls. If you don’t want to talk to the collection agency, you can request they no longer call you by sending them an email, fax, or registered mail. Keep in mind that a letter does not stop further collection action, such as a lawsuit, but it does stop the phone calls.
4. Don’t be intimidated when a collection agent says they will sue you. It is highly unlikely that a collection agent will actually sue you. It almost never makes financial sense for them to spend money on lawyers to pursue you. However, the original creditor, like a bank or credit card company, is more likely to sue you if the debt is large enough and if they know you are working they may request and are likely to be granted a wage garnishment against you.
5. Don’t be bullied into making a promise you can’t keep.  Only offer a payment plan that you can realistically afford. If you can’t make the payments, they will just call back when you default the second time and you will jeopardize any settlement agreement you made.
6. Offer a lump sum settlement for less than the full amount owed. However, before sending them any money, get a conditional letter of settlement from the collection agency that says how much you will pay, when you will pay it, and that once you make the final payment you are fully absolved from any demand on the remaining balance.
7. Remember the Ontario Statute of Limitations on Debt. In Ontario a standard creditor, like a bank or credit card company, has two years to commence legal action.  After two years, it’s too late. Don’t let a collection agency intimidate you by threatening to sue you for a debt that is more than two years in arrears. Learn more about how long a collection agency can collect on a debt in Canada.
8. Remember the credit bureau purge policy.  In most cases a debt will automatically be purged and not appear on your credit report after six years of inactivity. So, there is generally no point in making a payment to a collection agency on a debt that is about to be, or has been, purged from your credit report.
9. Only pay a collection agency when it is in your best interest to do so.  If the debt is small, like an old cellphone bill, and that’s the only negative item on your credit report, paying to clean it up may be in your best interests.  However, paying old debts, or just paying one debt when you have many other debts may not solve your other debt problems. There are situations in which you should not pay a collection agency.
10. If collection agents are calling you because you have too much debt, you need to make a plan to deal with all of your debt, not just the one debt the collection agent is calling you about.  That’s when a consumer proposal or personal bankruptcy may be the best option to stop the calls and deal with your debts once and for all.  It’s a great feeling not having to worry about collection agency phone calls.

For more insider information on dealing with collection agencies, listen to the podcast or read the transcript below.

Resources Mentioned on Today’s Show:

• Blair’s blog at Kingston Data & Credit
• Collection Agency Act of Ontario
• Consumer Protection Ontario: Collection Agencies – Know Your Rights
• Equifax Free Credit Report
• TransUnion Free Credit Report

FULL TRANSCRIPT show #70 with Mark Silverthorn and Blair Demarco-Wettlaufer

For our first show of 2016 we’re going to bring back two of my guests from 2015 to help us answer one of the most common questions I get asked, and that’s, “how do I stop the collection agents from calling?”

So on today’s show we’ve got the top ten tips for dealing with collection agents.

I’ve got lots of great tips from two industry insiders, so I’m going to play you clips from my conversations with them, and then I’ll be back in the last segment to give you a quick summary of the top ten tips for dealing with collection agents.

And of course everything we discuss today, including all of the tips and a full transcript of today’s show is available on our website at hoyes.com, that’s h-o-y-e-s.com.

So let’s get started with some facts from Blair Demarco-Wettlaufer, who manages a collection agency. Back on show #20 he told me something that many people don’t know, and that’s that there is something a collection agent must do before they attempt to collect a debt.

Here’s what he said:

Blair Demarco-Wettlaufer: In Ontario, which is probably most of the people listening to this show, what’s required by the Collections Agency Act of Ontario is a file comes in, it gets put into our database, our contact management system and a collection letter goes out. That’s actually required by law. We have to send a letter and wait six days before we start calling.

Doug Hoyes: So, in every single case, you have to notify the debtor in writing?

Blair Demarco-Wettlaufer: Yes, in Ontario.

Doug Hoyes: In Ontario.

Blair Demarco-Wettlaufer: Ontario and B.C. Now, obviously if we get a file that is two or three years past due, we might get no address at all or an address where mail’s been returned or an address that isn’t forwarded anymore. But we still are required by laws, written in 1975, to mail out a letter and wait the six days.

Doug Hoyes: Okay. So, as a practical point here then, if I’m listening to this show and I’ve got debt and I get a call from a collection agency, I should have already got a letter or I can at least ask, well send me something in writing, then.

Blair Demarco-Wettlaufer: Actually that’s in the Act. If a consumer gets a surprise call from an agency, and obviously Canada Post isn’t without its quirks, and they say, I didn’t get a letter; they have the right under The Collection’s Agency Act to have that letter re-sent. They can ask for it by mail, if the consumer and the agency are willing to co-operate, they could e-mail it to them or fax it to them.

But the important thing is the consumer has a right to know how much is claimed is owed, who the creditor is, what the lawful name of the collection agency is and the name of the agent reaching out to them. Those are key points that have to be made.

Doug Hoyes: Okay, so you get the file and the debt could be, like you say, anywhere from 30 days and up in age, the first thing you do is send out a letter?

Blair Demarco-Wettlaufer: Right.

Doug Hoyes: And you said you have to wait six days?

Blair Demarco-Wettlaufer: Six days in Ontario.

Doug Hoyes: So there you go.  Tip #1 for dealing with a collection agent, by law, in Ontario, they are required to send you a letter (obviously in writing), stating who they are collecting for, how much is owed, the name of the collection agency, and the name of the collection agent who is contacting them.  And after sending the letter they have to wait six days to make sure you’ve received it, and only then are they allowed to call you.

If you don’t think you owe the debt, or if you think the collection agent has an incorrect amount, you have every right to ask for something in writing with all of the details.  If the collection agent can’t produce that letter, they can’t call you.  That’s the law.

So what if you truly don’t owe the money?  What if you get a phone call for a debt that isn’t yours?    That was my next question to Blair:  If I don’t owe the money, what should I do?

Blair Demarco-Wettlaufer: Well, first of all you should definitely pick up the phone and talk to the agent and let them know. The problem is a lot of agents aren’t educated in the laws or they’re not sophisticated enough to listen because they’ve been trained to demand the money and throw the excuses to the side. Regardless, you should communicate clearly and effectively that you dispute the debt, why you dispute the debt and what you want to do; if you can do that verbally, great. You know it could be an issue of identity theft, my I.D was stolen a year ago, I have a police incident report number, here you go, give that. Or, I’ve disputed this debt, I have a copy of the letter I sent to Bob the dentist three months ago, I’ll send you a copy, fine.

Ultimately though, if you send a letter, a registered letter to the agency, disputing the debt and requesting no further calls, they’re done.

Doug Hoyes: So, I can actually stop you from calling me by sending you a registered letter.

Blair Demarco-Wettlaufer: Yes. You can’t stop the consequences but you can stop the calls.

Doug Hoyes: So, and the consequences in that case obviously in that case would be if I actually do owe them money then I guess you’re going to place it on my credit report. You could return it back to the original creditor who could decide to take me to court and sue me.

Blair Demarco-Wettlaufer: A lot of agencies actually have their own internal paralegals and lawyers where they will initiate the legal action. You know especially when you’re dealing with debts upwards of $3,000 and more. That’s when small claims court becomes viable for the cost. You know, no one is going to sue anyone over a $53 library fine. It’s just not going to happen. But if you owe on your Visa $6,000 and you’re gainfully employed, yes the threat of legal action could be real.

Doug Hoyes: And so, collection agencies will actually commence lawsuits. It’s not your common collection tactic obviously. It doesn’t happen in most cases I would assume.

Blair Demarco-Wettlaufer: Well, it depends on the creditor and the agency. There are some law firms acting as collection agencies and they sue 30, 40 percent of the accounts that come into their office.

Our office, we’ll choose a handful of files that we’ll take legal action on every year. If the debt’s over the two year mark, it falls outside the statute of limitations in Ontario. If the person isn’t gainfully employed, we don’t want to take legal action because it’s the creditor throwing good money after bad. If the debt is too small, if it’s under $3,000, we generally don’t encourage it. And if the client doesn’t have ironclad documentation, a signed contract, invoices, then we can’t put a case together.

So, there are a lot of things that have to happen, realistically, for legal action rather than an emotional agent on the phone saying I’m going to sue you if you don’t pay this.

Doug Hoyes: Right, so what you’re saying if I’m a debtor, the threat of a lawsuit, it might be a real threat but you just gave us a list of a whole bunch of times where it’s not going to happen. And so you got to kind of understand your rights.

I think this is some great insider information.

Over the years I have had thousands of people come to my office because they’re afraid that a collection agent will take them to court.  As Blair Demarco-Wettlaufer just said, at his collection agency there are only a handful of files he gets every year where they will recommend that the original creditor take legal action.

If the debt is small, which at Blair’s firm may be around $3,000 or less, it’s not worth the time and legal fees to go to court.  He also talked about the Statute of Limitations, and we’ll get back to that, because that’s a key point, but I want to get back to this point about getting sued by a collection agent.

Back on show #35 my guest was Mark Silverthorn, a former collection agency lawyer who wrote a book called, The Wolf at the Door: What to do When Collection Agents Come Calling, and I asked him about dirty tricks used by collection agents, and that’s where we talked about collection agents threatening to sue debtors.  Here’s what he said:

Mark Silverthorn: Well, the number one dirty trick would be threatening to sue a consumer in circumstances where the bill collector does not have expressed permission from the creditor to do so. In Ontario, it is illegal for a collector employed by a collection agency to threaten to sue you if the creditor has not authorized the collection agency to sue you. And typically, creditors don’t authorize collection agencies to sue files. If they want to file suit they would give it to a lawyer or a law firm; it would never even get sent to a collection agency in the first place.

Doug Hoyes: So, it’s highly unlikely that a collection agent will sue me.

Mark Silverthorn: That’s correct. In my book The Wolf at the Door, I estimate that collection agencies collectively across Canada, fewer than one in 10,000 accounts placed with them for collection.

Doug Hoyes: One in 10,000 times you’re going to get sued, the rest of the time it’s an idle threat in effect is what you’re saying.

Mark Silverthorn: Right. Now if a creditor does want to sue you, then they’ll send it to a lawyer or a law firm or they’ll do it internally. So, I don’t want your listeners to think that the odds of you being sued are one in 10,000. It’s when if you get a call from a collection agency or you get a collection notice from a collection agency, your account is going to be with that agency for a period of time and while it’s there the odds are relatively remote that you’re going to be sued.

Doug Hoyes:  So there you have it, from two independent sources, a collection agent, and a former collection agency lawyer, both confirming that it is possible for a collection agency to sue you, but it’s unlikely.  A collection agency has to have permission from the creditor to sue you, and it has to make financial sense, and often it doesn’t.

But, as both Blair and Mark are saying, that doesn’t mean you will never get sued.  It simply means that it’s unlikely that it will be the collection agency that will sue you.

In my experience, collection agencies very rarely sue anyone. But it is quite common for the actual creditor, like the bank or credit card company, to sue you for an unpaid debt, particularly if the debt is more than a few thousand dollars, and if they know that you have a job and therefore it is likely they will actually be able to collect if they sue you.

Blair talked about how to deal with a collection agent if you don’t actually owe the debt.  Of course in most cases if they are calling you, it’s because you owe the debt, so then what do you do?

One approach is to confirm with the collection agent that they actually have all of the necessary information.

Blair already told us that if the collection agent doesn’t have ironclad documentation, such as a signed contract or invoices, they can’t put a case together, so they won’t sue you.  Blair also said they must send you a letter before they start calling.  So that’s what I asked Mark Silverthorn: how should I deal with a collection agent if I do owe the money?  Here’s his answer:

Mark Silverthorn: Well, if I recall correctly in most provinces, a collection agency is required to send you a written notice five or six days before they start calling you. So, that it’s very possible that you’ve received a written notice from a collection agency before they’ve made a call. Now certainly, if a person wants to speak to someone at a collection agency, they can. And what they may want to do is ask the collector certain questions and at any time the consumer should feel comfortable terminating the call. But I just made a list of some of the questions that you might want to ask a collector.

Doug Hoyes: Fire away.

Mark Silverthorn: Well, what is your name? What is the correct spelling of your last name? What is the correct spelling of your first name? What is the name of your employer? What is your phone number? Is there an email address where I can contact you or your supervisor? What is your fax number? What is the name of the creditor on whose behalf you are calling? What is the account number you are calling about? What is the outstanding balance on the account? What is the date of last payment? Are you able to provide me with any documentation proving that I owe this account? And would your client consider accepting a lump sum payment equal to 25% of the current outstanding balance?

Doug Hoyes: So, I guess what you’re saying is, yeah you can push back. You don’t have to just let them yell at you and scream at you and tell you to put your TV on the front porch, which is not even legal anymore anyways. You can ask questions, you can push back. And that’s the starting point as a consumer. Get the full information, get them to put it in writing for you is what you’re saying.

Mark Silverthorn: Right, and I mean if you ask the collector for the spelling of their name, the collectors may, if it’s an unprofessional collector, the collector may be intimated by that because the collector – I mean the reason why you’re asking those questions is because if you want to make a complaint against the collector you need to know the collector’s name.

Doug Hoyes: That’s some interesting advice.  Mark is saying that you don’t have to allow the collection agent to bully you.  You are well within your rights to ask questions, and if the collection agent doesn’t have all of the facts, or is doing something unethical, you may be able to scare them off.

But again, the more common situation is that you owe the money, so let’s go back to Blair Demarco-Wettlaufer for his suggestions on what to do when you get a call from a collection agent.

Blair Demarco-Wettlaufer: Well, there are a couple of things that you can do. Obviously if you want to pay it or you feel you should pay it or you want to avoid the consequences for nonpayment, you should reach back out to the collection agent when you get the letter or you get the answering machine message. And you should be honest.

Most agents are motivated to collect the payment in full because they work on a contingency – the company, the collection agency works on a contingency or commission basis. They only get paid if they collect. And some agents are working in boiler room call centres where they’re driven.

But you as the consumer, what you should do is make a realistic payment arrangement. You shouldn’t promise something that you can’t do. You should not promise – if you’re reaching for that $100 a month payment, don’t offer it, offer 70, offer 50. Offer something realistic. From the agent’s standpoint, the agents often hear every day, I want to pay that bill, but I can’t. My dog got sick or I’ve just lost my job.

There are a couple of things you can do to negotiate that will get you traction with the agent. The first is if you want to show the agent that you’re serious about taking care of this, you can do what’s called a good faith payment in our industry.

Let’s say you owe $1,000 and you just lost a job and you’re starting a new job in two weeks and you want the agency to leave you alone. You can say to the agent, Bob, I want to take care of this. I can’t right now. I have no income currently. I’m going to pay you $50 right now to show my intent and I will talk to you in three weeks. If you actually follow through with that $50 payment, it’s not a lot but it shows the agent you’re actually serious. Actions speak louder than words.

The other option you can do is if you want to make arrangements on a balance, you can offer a series of payment arrangements; either through post-dated cheques or pre-authorized payments. Be careful with this, though. Make sure that you get your arrangements by email or you’re sending cheques that are clearly identified as post-dated and that they’re made out to the right party, to the collection’s agency trust account.

The last thing that you can do is, let’s say you dispute a portion of the debt or a portion of the debt is interest that has accumulated over time or you were unsatisfied with the services. You can offer what’s called a settlement, a lump sum settlement where if you owe $1,000 you’re offering to pay $700. Protecting yourself as a consumer in this case is very important. Before you pay one dime you should get what’s called a conditional letter of settlement from the collection agency that says on condition of Frank paying $700 by December 5^th, he is released from any claim and obligation relative to this debt. And that way if Frank makes the payment, he is absolved from any demand on the remaining balance. In most provinces, if you make a partial payment on the debt, that acknowledges liability for the full balance.

So, if you don’t get that letter first, you know if the agent says oh just pay $700 and we’ll make this go away, that doesn’t protect the consumer and the file could be reassigned to another agency a year down the road and interest could accumulate. Always get a settlement letter before you make a settlement amount.

So, there are a number of ways that you can negotiate with an agency, but the important thing is to be honest and to only promise what you actually can do.

Doug Hoyes: That’s good advice.  If you know you owe the money and can afford to make some payments, offer to do what you can do.  If you can raise some cash to settle the debt for less than the full amount owing, great, make an offer, but always get the settlement in writing.

Earlier Blair mentioned the Limitations Act, or what they call on television the Statute of Limitations.

Blair Demarco-Wettlaufer: For legal action it’s two years in Ontario.

Doug Hoyes: Two years in Ontario. So, that means if I’ve disappeared off the face of the earth for two years, legal action hasn’t commenced, well probably it’s – it can’t now. That would be my defence in court.

Blair Demarco-Wettlaufer: Right, the ship has sailed.

Doug Hoyes: The ship has sailed. So, let’s say I’m a year and a half into this and I’m talking to the collection agent and I do what you said number one there make a good faith payment of $50. Well, I just started the two year clock again.

Blair Demarco-Wettlaufer: Bingo, the clock resets, absolutely.

Doug Hoyes: So, if I’m going to make a deal, I go back to what you said, then. You better make sure you can honour it because if I pay that 50 bucks, I’ve now given the collection agent two more years to pursue me, in effect.

Blair Demarco-Wettlaufer: Exactly. And for credit reporting, reporting to the credit bureau, it has a six year window in Ontario, that clock resets too with the payment.

Doug Hoyes: Yeah that’s pretty dangerous if you aren’t going to be able to continue on with it.

Blair Demarco-Wettlaufer: So, the important thing is to know how much you owe, what are the consequences? Have the consequences been avoided? I mean a lot of cases, collection agencies aren’t sophisticated. They’ll list the file on the credit bureau and then call the consumer. To my mind that’s incredibly dumb. It’s far better to call the consumer and say I haven’t put this on the bureau yet. My client’s asked me to, what would you like to do? And consumers react far better to knowing it hasn’t been listed with the bureau yet.

Doug Hoyes: So, how do you get paid, then?

Blair Demarco-Wettlaufer: Collection agencies – nine out of ten times in Canada, collection agencies work on a contingency basis or a commission basis. They get to keep a portion of what is collected. And this is important for consumers to know because there’s this misconception from T.V and U.S news that collection agencies buy the debt. That’s very common in the U.S and it’s starting to become common in Canada, but the debt would have to be two, three, four years old for someone to buy it.

In most cases, the creditor retains ownership and hires the collection agency to act on their behalf. And they could receive anywhere between 10 percent to 50 percent of the amount they are collecting, depending on the age, balance and type of creditor.

Doug Hoyes: So, if I’m a collection agent and I know that I’m going to collect somewhere between 10 and 50 percent is my commission, my contingency fee; I much would rather get a lump sum, which was your third option there that you mentioned. So, if it’s a $5,000 debt, I’d much rather as the collection agent get 2,000 bucks right now and write off the rest, take the money then I would get $50 a month for the next five years.

Blair Demarco-Wettlaufer: A lot of old school agencies work like that. In fact, they’ll send out as that initial collection letter, a letter offering a settlement right off the get go. It’s like Oliver Twist begging on a street corner. Please sir, can you only pay $700 of the $1,000?

I personally believe a lot of consumers end up in collections, they’re not bad people. Nine out of 10 consumers ending up in collections are procrastinators; they don’t understand their financial rights. They weren’t aware of the debt. They’ve had bad circumstances happen or they’ve reacted emotionally to a debt and they’ve made a bad decision.

Most consumers don’t have a spare $6,000 in their back pocket. That’s why they end up in collections. I, personally, would rather see a consumer make regular payments for the balance in full where it doesn’t strain the consumer rather than pin them up against the wall and ask them for a settlement.

Doug Hoyes: That’s a lot of great, practical advice on how to deal with a collection agent.  We’ve got a lot more to come, but we’re going to take a quick break and then we’ll be right back.  You’re listening to Debt Free in 30.

Doug Hoyes: It’s time for the Let’s Get Started segment here on Debt Free in 30.

My name is Doug Hoyes, and I’m joined by Blair Demarco-Wettlaufer who’s a collection agent, and today we are talking about the top tips for dealing with collection agents.

I’ve written articles where I’ve said you should never pay a collection agent.  As we discussed in the first segment it’s unlikely they will sue you, and if collection activity stays on your credit report for six years, which is typically how it works here in Ontario, whether I go bankrupt or pay a collection agent or do some other means of settling the debt, my credit rating’s pretty much pooched anyways. That’s why I’ve said you should never pay a collection agent.

Now, obviously you disagree. You believe there are cases where yes I should pay a collection agent.

Blair Demarco-Wettlaufer: There are cases where you shouldn’t. I absolutely agree.

Doug Hoyes: Okay, so let’s talk about the “shouldn’t” then first. When should you not pay a collection agent? It doesn’t make sense.

Blair Demarco-Wettlaufer: You should not pay a collection agency if you dispute the debt and you don’t feel the debt is legitimate. By paying it, you’re giving that debt legitimacy. If the debt is passed the ultimate Statute of Limitations, six years, unless it’s some weird case like a student loan or a provisional offences act, the Statute of Limitations is over. It won’t be on with your credit bureau, it won’t be open for legal action. You shouldn’t pay it in that case.

Doug Hoyes: What about the two year?

Blair Demarco-Wettlaufer: That’s for legal action.

Doug Hoyes: For legal action, okay.

Blair Demarco-Wettlaufer: Now there are a bunch of exceptions for this. So, it’s hard for me to give a general rule. If you borrow money from a credit union, credit unions in Ontario have this special thing called the wage assignment. And you sign a piece of paper and it says if I don’t pay this you can just take 20 percent from my pay. Only credit unions have this power and they can go just show your signed letter to your employer and you lose 20 percent of your pay and it’s good for ten years. Those are unique exceptions. Or student loans, they don’t have the same statute.

Doug Hoyes: Government taxes obviously another one.

Blair Demarco-Wettlaufer: Exactly. But I mean if someone is calling you for your Rogers bill from 12 years ago, no, times up. You should not pay that.

Now, if it’s on your credit rating already, paying it will improve your credit rating slightly. Obviously, Equifax and Trans Union, the credit bureaus in Canada, they have a super-secret score formula that changes constantly and they’re not going to share it with you or me or the consumer.

But let’s say you have a Fido cell phone. It shows up as a trade line item and it’s an R1 because you’ve been making your payments. And then you get a little behind and now it’s an R2. And then you stop paying it completely it becomes an R9. People have heard that term, you have an R9 rating.

And then the file gets sent to a collection agency.  At that point it’s still worth while paying because the collection agency hasn’t recorded it as a registered item. Registered items are bankruptcies, judgments and collection items. If I, as a collection agency, list that on the credit bureau, it’ll show up as Kingston Data and Credit/Fido for an original balance of $283 and a balance with interest of $302. That is a negative rating to that person’s credit for six years from the date of delinquency. If they pay that it will be reduced to a zero balance or if they settle it, it will be reduced to a zero balance with the words settlement next to it. And that will improve their credit score. To what degree, only the IT wizards at Equifax and Trans Union know. But it will improve their rating.

I can tell you we get a call in our office every other day, every three days from somebody calling us going, I can’t get a car, I can’t get a house. There are legitimate reasons to pay the debt. And if you can avoid it going to your credit bureau as a registered item by a collection agency, yes you should pay it, but only if the collection agency has the right to put it on your bureau. Someone calling you on a 12 year old debt can’t put it on your bureau.

Doug Hoyes: So, if the debt has already gone and it’s now showing up in the registered item sections, can I make a deal with you to clean that up or is it too late at that point?

Blair Demarco-Wettlaufer: It’s generally too late. There are a couple of things. The credit bureau isn’t a snap shot, it’s a regular reporting cycle. So, the credit cards you’re reporting every month we’re reporting every month. We don’t have the right to just wipe it away. That being said it’ll happen. We’ll get a file in our office that should have never been on the bureau. So, we do have the power to reach into our rating and make it vanish. But we can’t use that as a negotiation tool.

Some smaller collection agencies use that and if Trans Union or Equifax ever found out, they’d pull their ability to list on the bureau, they’re not – we’re not supposed to gamify or play jiggery, pokery with people’s credit ratings. That’s not supposed to happen.

Doug Hoyes: Really what this all comes down to as well, getting back to the question should I pay a collection agency or not, what’s the total amount of the debt? If we’re talking about a $500 cell phone bill, well okay I guess I could go bankrupt and get rid of that, if that’s my only debt that seems kind of silly.

Blair Demarco-Wettlaufer: Exactly.

Doug Hoyes: So, something that’s reasonable…

Blair Demarco-Wettlaufer: It should be in your big game plan. If you can get out of debt in less than seven years and you’re not treading water on horrible interest rates, absolutely you should pay your debt. If you can’t get out of debt or you’re paying $300, $400 a month and you’re just satisfying minimum payments or interest rates, yeah you should look at a consumer proposal or a bankruptcy. I’d be the first to say that because you’re just throwing good money after bad and you’re not improving your personal situation.

The big picture matters. And if you can negotiate with the agency for a settlement, some agencies have to go back to the creditor; some agencies have blanket authority to accept your settlement on the phone right then and there.

The bigger creditors will tell the agency you can settle that debt for 70 percent or you can wave the interest. So, you can absolutely pay that and in a lot of cases, it’s worthwhile to pay it before it gets to the bureau or to pay it to correct your credit rating if you plan on getting a car or a house, two, three, four years down the road.

But if you can’t get out from under in seven years or you have to pay one creditor to borrow money to pay another creditor, no you shouldn’t – things have gone horribly pear shaped, you should look at bankruptcy.

Doug Hoyes: Thanks Blair.  We’ll be right back on Debt Free in 30.

Doug Hoyes: Welcome back.

It’s time for a summary of our top ten tips for dealing with collection agents:

First, ask for proof of the debt in writing. Under Ontario law a collection agency is required to notify a debtor, in writing, at least six days before they start phoning you.

Second, if you dispute the debt, talk to the collection agent, and provide proof if you don’t owe the money.

Third, you can send them a registered letter requesting no further phone calls and they are no longer allowed to call you.  That doesn’t stop further collection action, such as a lawsuit, but it does stop phone calls.

Fourth, don’t be intimidated when a collection agent says they’ll sue you, because they almost never sue anyone.  However, the original creditor, like a bank or credit card company, is more likely to sue you if the debt is large enough and if they know you are working and they are likely to get a wage garnishment against you.

Tip  number five: Don’t be bullied into making a promise you can’t keep.  Only offer a payment plan that you can realistically afford.

Number six:  Before sending money on a lump sum settlement, get a conditional letter of settlement from the collection agency so they can’t change the deal later.

Tip number seven: Remember the Limitations Act.  In Ontario a standard creditor, like a bank or credit card company, has two years to commence legal action.  After two years, it’s too late, so don’t let a collection agency intimidate you by threatening to sue you for a debt that is more than two years in arrears.

Tip  number eight: Remember the credit bureau purge policy.  In most cases a debt will automatically be purged and not appear on your credit report after six years of inactivity. So there is generally no point in making a payment on a debt that is about to be, or has been purged from your credit report.

Tip number nine: Only pay a collection agency when it is in your best interest to do so.  Paying one debt when you have lots of other debts doesn’t solve your debt problems.

Finally, our most important tip for dealing with collection agencies: If collection agents are calling you because you have too much debt, you need to make a plan to deal with all of your debt, not just the one debt the collection agent is calling you about.  That’s when a consumer proposal or personal bankruptcy may be the best option to deal with your debts once and for all, and give you a fresh start.  It’s a great feeling not having to worry about collection agency phone calls.

That’s our show for today.  Full show notes are available on our website, including links to everything we discussed today and our top ten tips. So, please go to our website at hoyes.com, that’s h-o-y-e-s-dot-com, for more information.

Thanks for listening. Until next week, I’m Doug Hoyes, that was Debt Free in 30.

The post Top 10 Tips For Dealing With A Collection Agent appeared first on Hoyes, Michalos & Associates Inc..