If you have debts that you are unable to pay, and you don’t receive wages, here’s what you need to know:
First, if you don’t pay your credit cards or other unsecured debts, your creditors can take you to court, sue you, and attempt to garnishee your wages. However, if all of your income comes from social assistance, government pensions, or child support, you have no wages to garnishee. Credit card companies are not able to get a court order to allow them to garnishee social assistance payments, government pensions, or support payments; they are only able to garnishee wages.
Second, if you decide to go bankrupt to deal with your debts, you are required to pay the trustee’s costs to administer your bankruptcy. The minimum cost of a first bankruptcy is $200 per month for nine months. While bankrupt you will also lose your tax refunds and GST credits, which increases the cost of your bankruptcy.
Therefore, for many people who do not have wages to garnishee, the correct option is to NOT go bankrupt until you return to work. There is a cost to bankruptcy, and you are protecting yourself from creditors that cannot, in most cases, garnishee your income.
If you have no assets and if you do not earn income from employment, our advice is as follows:
- First, to protect yourself it is often wise to open a new bank account at a new bank. If you have a Visa card at XYZ Bank and you don’t pay them, it is easy for XYZ Bank to go into your bank account at XYZ Bank and get their payment. That’s why you want to bank at a bank where you don’t owe any money.
- Second, bankruptcy may still be an option for you. If the stress of the phone calls is more than you can handle, you may decide it’s worth it to pay the money to go bankrupt to stop collection calls. If you have family or friends that can help you with the payment it may also make sense for you to go bankrupt.
If you are considering bankruptcy as a way to deal with debt and still have questions, please contact us today.
“If the stress of the phone calls is more than you can handle”…change your phone number? Get an unlisted number? Get a prepaid cell phone? All much cheaper than filing for bankruptcy!
Hi Joe. Yes, you are correct, if you have no assets and no wages to garnishee, and no money in a bank account that can be seized, you can avoid your creditors by changing your phone number, so they can’t phone you. I agree that in some cases this is a viable strategy. I’ve posted some further thoughts in my article on “how long you can run from your debt”. There are two points to remember:
First, avoiding creditors does not eliminate debt.
Second, this “avoidance” strategy only works if you have no assets that can be seized. If you are unemployed now but expect to start working soon, hiding may not be a good long term strategy.
Hi so I have a question, I hurt my back a few years ago and am disabled for who knows how long, as well I have other medical problems. I have way to much debt now and am on social services because wcb turned me down. So I actually went bankrupt in my 20’s this would be my second time. What I would like to know is should I just do what you suggested on Joes question and just hide from them? Or should I go bankrupt? I have no assets or any money in the bank ??
Hi Tammy. If you go bankrupt a second time you are automatically bankrupt for a minimum of 24 months, so for two years you would have to report your income to your trustee every month. In addition, credit bureaus in Canada generally report a second bankruptcy for 14 years. Since you have no assets and are not working, you have no assets that creditors could seize, and no wages to garnishee, so unless you want to pay for a bankruptcy for 24 months, avoiding bankruptcy is probably your best option. Once you return to work your decision may change, depending on whether or not the creditors are pursuing you, and whether or not a more formal solution to your debts is required.
In addition to the credit card debt I am not going to/not able to pay, I have used my overdraft at my soon to be former bank. I am a senior on pensions only with no assets except a 12 year old car jointly owned with my son. Just wondering how to deal with the bank and the overdraft I have used. I can’t repay it either. I am not bothered by high pressure tactics and am changing my phone number and bank Tuesday.
Thank you for the informative article. Very much appreciated.
I had this very strategy figured out on my own, just makes sense right?
But nice to have it verified.
Oh – I have no “estate” so I don’t see how the credit card company can get anything that way but my kids and ex-husband are worried that they will be called upon to repay
my debt. I tell them their fears are unfounded. No one else is responsible for my unsecured debt. Am I right?
Hi Judy. Yes, you are correct. If you have no assets, and no wages to garnishee, the logical option is to open a new bank account at a new bank. Only you are responsible for your unsecured debt, so if you are willing to put up with the phone calls, this strategy makes sense for you.
Hi how are you, I’ve been receiving calls from creditors, I was young and dumb helped people out and they never payed their bills now am stuck with theirs and now mine, I have my student loans to pay and I can’t because am on social assistance, I want to start paying off things to get my cedrit back, my goal is to buy a house in the next 4 years am starting to get very stressed out. So my question is how so is start getting everything paied off so I can start saving to buy my house
Thanks in advance Deanne
He Deanne. The starting point would be to figure out what you can pay each month to the creditors, and then call each of them up and attempt to work out a payment plan. You will have to determine if this is possible on your limited income. Feel free to give our office a call at 310-PLAN and we can help you with the math, and determine the best course of action for you.
I have a few questions about what you do. I recently found out an old bill from MB hydro went to collectios aswell as a few other outstanding balances on payday loans and an outstanding balance from the CRA I was just wondering if you can help me as I am a single mother on disability assistance and can not afford these amounts and I’d like to find something other then claiming bankruptcy thank you so much for your time.
Hi Selena. We have offices throughout Southern Ontario, so feel free to contact us by phone or email and we can explain your options.
I am on social assistance and was told by my worker that my cheque is being garnished by the federal gov’t for money I owe from a student loan. They have agreed to pay my rent every month but I receive no other amount for food. My question is, are they allowed to do this?
Hi Elsie. It is very unusual for the federal government to garnishee a social assistance cheque. However, if that’s what your social worker says is happening, it’s probably happening. I would suggest getting confirmation that it is the federal government that is garnisheeing your cheque. If it is, you have two options.
First, you could contact student loans and explain your situation and ask them to reduce or stop the garnishment.
Second, you could consider filing bankruptcy. Whether or not that makes sense will depend on how much is being garnisheed, and what a bankruptcy would cost. I suggest you contact our office, or contact another licensed insolvency trustee to review your specific options.