How to regain control of your finances when debt collectors come knocking

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Q: My partner and I have lived in Canada for about 10 years. When we first came to Canada, he took out a credit card and after a few years, he owed about $15,000. He didn’t pay it and didn’t tell me about the letters he was getting. He said the letters stopped coming so he forgot about it. We tried to get a mortgage a few months ago and didn’t qualify at our bank because of the money he owes. A friend said they’d help us, so we ended up getting a mortgage through a connection at our temple. Now the collection company keeps calling and emailing. They said that my partner needs to go to court, and they will sell our house. I can help him pay back the money he owes, but we can only afford payments of about $1,000 a month. The collection company wants all the money now and we don’t want to be embarrassed at our temple. What can we do? ~Tulliya  

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A: Facing significant high interest credit card debt can be incredibly overwhelming, especially when a collection agency is threatening to take drastic measures against you. It’s a stressful and frightening situation that can leave you feeling helpless and anxious about your financial future. The constant pressure from debt collectors can take a toll on your mental health, making it difficult to focus on finding a solution. It’s important to remember that you are not alone in this, and there are steps you can take to address the situation and restore your peace of mind.

In Canada, it’s important to understand your rights and responsibilities when you’re dealing with collection agencies. While the rules vary somewhat from province to province, debt collectors must adhere to specific rules and regulations, and they cannot seize your property without following legal procedures. To navigate this challenging situation and find a resolution that works for you, it can help to seek professional advice from a non-profit credit counselling organization in your area. A credit counsellor will review your overall financial situation and then explain your options and what to consider. Here are some of the things they’ll explain when you’re dealing with collection agencies and past due debts.

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Know what collectors can and can’t do

Debt collectors are allowed to contact you and request payment for money you legitimately owe. However, it’s important to check online with your provincial or territorial consumer protection office to understand what debt collectors can and cannot do as they attempt to recover the money you borrowed. For example, they cannot harass you, use threatening language, call at all hours of the day and night, or misrepresent the situation. Each province has specific rules governing debt collection, so arming yourself with information about these regulations can help you feel more in control of your situation and communicate effectively with creditors and collections agencies.

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Verify the alleged debt

Especially when dealing with older debts, it’s important to request written confirmation from the collection agency detailing the “alleged debt.” This should include information such as the original creditor, the amount owed, the name(s) of the borrower(s), and the interest rate. You need to ensure that the alleged debt is indeed yours and that the amount is accurate. However, always refer to it as the “alleged debt” to avoid acknowledging it in any way.

In some jurisdictions, making a payment or acknowledging a debt verbally, in writing, or electronically can reset the statute of limitation. Once the statute of limitation on a debt has expired, creditors lose the legal ability to pursue you for the debt – unless you acknowledge it and reset the clock. A licensed credit counsellor in your area can explain how this affects you and your specific debts.

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While waiting for the agency to provide this information, obtain free copies of your credit reports. This will help you verify the status of a specific debt and determine whether you still legally owe the money.

Consider debt relief options based on your current circumstances

Once it’s confirmed that you owe the money the collection agency is contacting you about, and that it has not yet passed the statute of limitation, it’s important to act promptly to deal with the debt. Various debt relief options can help you manage your debt effectively and avoid further legal action, such as garnishments or being sued for what you owe in court. Here is a brief explanation of some common debt relief options you may want to learn more about:

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Debt consolidation involves combining multiple high-interest debts into a single, more manageable monthly payment, typically at a much lower interest rate. There are different types of consolidation, each with its own pros and cons. For instance, a debt consolidation loan combines your debts into a new loan with a new payment, but you need a strong enough credit rating to qualify for the loan. On the other hand, a Debt Management Program (DMP) consolidates just your payments without requiring you to qualify for new credit. The payment is based on your budget, and when arranged through a non-profit organization like the Credit Counselling Society, creditors often support clients, like yourself, further by lowering or waiving ongoing interest charges.

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4 Common Debt Consolidation Mistakes and How to Avoid Them

Debt settlement involves negotiating with your creditors, either on your own or through a credit counsellor, to reduce the total amount of debt you owe and then making one lump sum payment to settle your debts. For many people, settlement is not an option because they don’t have access to a lump sum of money. Additionally, there is no guarantee that creditors will accept a debt settlement offer, and unless the settlement payment is facilitated by a credit counselling agency, the impact on your credit will last six to seven years. However, depending on someone’s specific situation, a debt settlement can be a viable option.

Choosing the Right Debt Consolidation Option for You

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A consumer proposal is a legally binding agreement, authorized by the courts, between you and your creditors to repay a portion of your debt over a specified period. Administered by a Licensed Insolvency Trustee, this option can offer relief from collection calls and legal action. It is often considered a less drastic alternative to bankruptcy.

Bankruptcy is a legal process that offers relief from most types of unsecured debt. It should be considered a last resort for dealing with debt problems due to its significant, long-term consequences, such as a negative impact on your credit file and the potential loss of assets. Bankruptcy is administered by a Licensed Insolvency Trustee, and if you have questions about consumer proposals and bankruptcy, one of our credit counsellors can provide more information about how these processes work.

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The bottom line on dealing with debt collectors for old debts

Dealing with collection agencies for old credit card debt can be a daunting experience, but understanding your rights and options is crucial. By verifying the legitimacy of the debt, seeking professional advice from an accredited not for profit credit counsellor, and exploring debt relief options, you can navigate this challenging situation more effectively. Remember, it’s important to stay informed, proactive, and as calm as possible in addressing your debt. Taking a practical approach will help you regain control of your situation and work towards a more stable financial future.

Related reading: 

Alternatives When You’re Declined for a Consolidation Loan 

Borrowing Your Way Out of Debt Can Be Risky 

Top FAQ About Debt Consolidation Loans and Alternatives 

Peta Wales is President and CEO of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Peta by email, check nomoredebts.org or call 1-888-527-8999.  

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