When you owe money, dealing with creditors and collection agencies can be a cumbersome and highly stressful affair. You want to stop the constant barrage of collection calls and letters reminding you that you have outstanding debt – as if you aren’t already aware – call that can negatively affect you both mentally and physically. And it gets even worse when creditors threaten legal action against you to reclaim the money.
So, what should you do if creditors are threatening legal action against you? Here are some options you should keep in mind. The most important first step is to make sure you know your rights and when you may need to seek creditor protection.
Your Rights as a Debtor
It could be the case that a collection agency – which often gets paid a commission for every dollar they collect – is using the threat of legal action as a scare tactic. Knowing the rules of the game as well as the rights you are entitled to as a debtor can help you better deal with creditors who threaten legal action. Keep the following in mind:
- A creditor has to first go to court and obtain a judgement order. Once they do, as a judgement creditor, they can then pursue legal collection remedies including obtaining a wage garnishment or freezing your bank account.
- Any threat to immediately garnish wages or seize your assets when a judgment order has not been obtained is illegal
- A collector cannot call you and claim they are from a legal department if they are not. It is illegal for someone to give the impression that they are a lawyer when they are not
In some cases, collection agencies may use the threat of legal action as a tactic to try and pressure you into agreeing to pay, regardless of whether or not you have the financial means to do so.
If you are sued, you should respond to the lawsuit. Pay attention to all due dates and court documents. Failure to respond can mean that the court will automatically rule in favour of your creditor.
Getting Creditor Protection
If you owe the money, and cannot repay, you may need formal creditor protection. In Canada, this protection is provided through two options in the Bankruptcy & Insolvency Act: a consumer proposal and bankruptcy. Both options provide a legal stay of proceeding that stops further collection actions.
What to do when a Wage Garnishment has been obtained
In Ontario, failure to pay debts, taxes or child support can result in your creditors obtaining a wage garnishment in court. This is an order that forces your employer to send up to 50% of your wages to creditors to repay your debts. Not only is this embarrassing, but it can also be damaging to your reputation at work.
While it may be used as a scare tactic, if one of your creditors has actually obtained a wage garnishment, they are fully within their rights to have your wages garnished. If this is the case, you should try pursuing the following options to stop a wage garnishment:
- Attempt to make a deal with the creditor: You have the option to call the creditor or their lawyer and offer to make a settlement. While you may be able to make alternate payment arrangements, this is unlikely because the creditor already tried to collect through letters, phone calls and collection agents, they have spent the legal fees associated with obtaining a garnishee summons and they can now receive money directly from your paycheque.
- File a consumer proposal: A consumer proposal can stop wage garnishments that have been obtained against you for outstanding debt. However, it cannot stop garnishment spousal or child support
- File for bankruptcy: A last resort option, personal bankruptcy will in most cases stop wage garnishments obtained by banks, credit card companies, collection agencies and so on. It will not stop garnishment for spousal or child support
When creditors threaten legal action against you for outstanding debt, Hoyes Michalos can help. Our team of experts can inform you of your options and give you the support you need to overcome your money problems. In most cases, we can notify your employer to stop a wage garnishment within a matter of hours after you have filed a consumer proposal.
Have you been threatened with legal action? Or are you currently being garnished? We give you options to get creditor protection and eliminate your debt. Contact us today for debt help.