WHAT CREDITORS CAN DO IF YOU DON’T PAY THE MONEY YOU OWE?

If you use or obtain credit to make purchases or to obtain services and you fail to repay this money back to your creditors, they have a number of options available to collect this money from you.

The options depend on the type of credit you have obtained. Generally there are two types of credit, secured and unsecured.


Secured Credit:

Secured credit is the kind you normally have for car loans and mortgages.  This means that the car or the house is the item that “secures” the credit or loan.  This type of credit or loan is usually for larger amounts of money than unsecured items like credit cards.  The creditor “secures” the item by registering a lien against it until you have paid for it in full. In other words, you don’t really own the house or the car until you pay for it in full. Once paid, the company releases their “security” and discharges or removes the lien. On a house, this is when the bank would discharge their mortgage or encumbrance.

If you have “secured” credit, this means that if you don’t make those payments to the creditor they can take back their security, the car or the house etc. This is called “seizing an asset”. To do this they must use a Civil Enforcement Agency and a Bailiff will do the actual seizure, or a finincial instatution will commence forclosure proceeding.

In some instances, the courts will allow the creditor to seize the asset and still pursue you for any shortfall. (The difference between what they received from the sale and what you owe them.)

If your creditor needs to go to court to recover the money you owe them, this will become more expensive for you as you will be required to pay for their legal expenses as well.

If the creditor receives authority to “Garnishee” your wages, bank account or an accounts receivable, different rules apply to each and you should go to the Government website for a full explanation. www.governmentservices.gov.ab.ca

Sometimes, in order to obtain credit if your credit rating isn’t good enough for you to qualify on your own, the creditor may have ask you to have some one else co-sign the loan.  In this case, if you don’t repay the amount you owe, they can ask the co-signer to pay this money for you. They can also garnishee the co-signers wages and seize their assets.  




Unsecured Credit:

The other type of credit is called “unsecured” credit. This is the majority of debt. Credit cards, lines of credit, overdrafts, payroll loans, utilities, Canada Revenue Agency (Income Tax) debt, dentist etc. Unsecured creditors can sue you and garnish income and bank accounts if you don’t pay them.

A creditor can hire a collection agency to try to collect either type of debt from you.

Although these creditors are unsecured and they have nothing as “security” for the money you owe them, they have the right to withhold future services from you. The credit card company can refuse further charges. The utility company can refuse to provide utilities without payment or deposits, dentists can refuse to do further dental work, Canada Revenue Agency can withhold or set-off GST credits and income tax refunds etc.

If you fail to pay your creditor and you owe them less than $25,000.00 they may choose to sue you in the Civil Division of Provincial Court (formerly Small Claims Court). If you are served with a Civil Claim DON’T IGNORE IT! You only have 20 days to respond. If you don’t respond they can obtain a default judgment against you which allows them to garnish your wages or bank account or attempt to seize your assets. You can represent yourself in Civil Court or you can hire a lawyer.

In some cases, the courts may allow the creditor to garnishee your wages or your bank account instead of “seizing the asset”. This is especially true for car loans when the car is worth less than the loan.

If you owe the creditor more than $25,000.00 the case will be heard in Queens Bench Court and you should hire a lawyer to represent you.  If you are served with a Statement of Claim you have 15 days to respond. You may want to contact a lawyer or Legal Aid for assistance.

If your creditor is awarded a judgment against you by the court, the judgment is enforceable for 10 years and it can be renewed for a further 10 years. Interest is charged on unpaid judgments. The judgment is only enforceable in Alberta if it is issued in Alberta. If you move to another province, the creditor can transfer the judgment to the other province, so moving doesn’t make the judgment disappear.

Once a judgment is granted the creditor can do one of three things to get the money you owe them:

• ➢    Register a Writ of Enforcement


• ➢    Garnishee your wages, bank accounts or accounts receivable


• ➢    Seize your property

For more information on this go to the government website:
www.servicealberta.gov.ab.ca


If your creditor is also your bank you need to be aware that they have the “right of set off”.  This means that they can withdraw money from any of your accounts at any location without notifying you or asking your permission. They also do not have to go to court for a judgment.  Unlike a garnishee, they do not have to leave you any money. For example, if you owe money to the RBC VISA and you have an RBC chequing account, they can take money out of your checquing account to apply to your outstanding VISA debt.

Conditional Sales Contracts:
➢    When you purchase something on a Conditional Sales Contract you don’t actually own the goods until you pay the debt in full. The goods are the “security” for the contract. For example, when you buy a car on a Conditional Sales Contract you don’t actually own the car until you have made the final payment.

Quit Claim:
➢    If you don’t make the payments on a secured debt the creditor can ask you to sign a “Quit Claim”, which means that you are voluntarily giving back the security. If you agree to do this, the creditor will not have to hire a Civil Enforcement Agency and a Bailiff to seize the asset from you.  

➢    If the creditor sells the security and does not receive enough money to pay off the debt, you are still liable for the remaining balance. On the other hand, if they sell it for more money, they are required to pay the difference to you. For example, if you return a vehicle to the dealership and you still owe $5,000.00 on the loan and they sell the vehicle for $4,500.00, they will ask you to pay the balance of $500.00.  If, on the other hand, they sell the vehicle for $6,000.00, they will have to pay you the difference of $1,000.00. It is in your best interest to try to sell the vehicle on your own, for the highest selling price and then pay off the loan.