August 15, 2024
Trying to find your way out of debt can be stressful and confusing. There’s no shortage of debt myths out there, and it isn’t always easy to separate the fact from the fiction.
Trying to find your way out of debt can be stressful and confusing. There’s no shortage of debt myths out there, and it isn’t always easy to separate the fact from the fiction. It’s tempting to rule out some debt solutions, especially if you don’t have all the information you need to decide what’s right for you.
We’re here to break down some of the big ones and set the record straight on some of the most common myths about debt.
This is something that people may worry about. The idea of the police knocking on your door and taking you to jail for an unpaid debt is, however, a myth. It’s almost impossible for authorities to arrest you and send you to jail for not paying your debts in Canada.
While debtors’ prisons were once a thing in Canada, they were abolished in the 1800s. Failing to pay debts in full or on time is a civil matter, not a criminal one.
The only possible exception where authorities could send someone to jail for an unpaid debt is in cases of tax evasion. It would need a massive amount of money for the government to threaten jail time, and even then, it’s incredibly rare for anyone to actually be sent to prison for it.
So, while you can be sued for an unpaid debt or have your wages garnished, the odds of ever going to jail for a debt you haven’t paid are incredibly small.
There are also ways to halt any legal action taken against you for an unpaid debt.
Wage garnishment is a legal process where a portion of your income is given to a creditor to pay off an outstanding debt. A creditor must file a lawsuit against you to prove you owe them money. Once the court rules in favour of the creditor, they can then seek a wage garnishment order from the court, mandating that your employer send them a portion of your salary until the debt is repaid.
It is possible to stop this, both before it happens and after it has already started.
Filing for bankruptcy or a consumer proposal will issue a stay of proceedings, meaning that any legal action taken against you for a debt is halted. This includes wage garnishment.
This stay of proceedings is governed by the Bankruptcy and Insolvency Act.
Only a Licensed Insolvency Trustee can file a consumer proposal or bankruptcy on your behalf. That’s why it’s important to reach out if you’re ever facing legal action over a debt.
It is highly unlikely that anyone in your personal life will know you have filed a consumer proposal or bankruptcy unless you tell them.
Legally filing a consumer proposal or bankruptcy is a matter of public record that anyone can access, but accessing these records requires a lot of effort.
If you want to see if someone you know has filed either a bankruptcy or a consumer proposal, you have to search the website of the Office of the Superintendent of Bankruptcy (OSB).
You also must pay a fee before accessing any records, and you must know the exact name and date of birth of the person you are searching for. If you simply search for "John Smith," you’ll likely get hundreds of results.
The likelihood of anyone you know paying the fee and searching the records to see if you have filed a bankruptcy or consumer proposal without you having already told them you have is miniscule.
If your wages are being garnished, then your employer will already know you have debt issues. Filing a consumer proposal or bankruptcy stops wage garnishment, so your employer will be informed of that. If you file either before your wages are garnished, then your employer will not be told.
This is certainly a common misconception, but it’s not the reality.
While you may need to sell some assets as part of the bankruptcy process, you will not lose everything.
Each province has a large list of assets that are exempt from bankruptcy. You can find the information for each province's exempt assets here.
There are some common ones in most provinces, though; these include.
Tools of the trade: This refers to any “tool” you own and need to have to earn an income from your work. Some provinces allow you to keep everything for this, others only a certain dollar amount.
Household goods: All provinces allow you to keep a certain amount of furniture. Again, some allow you to keep all your furniture; others give you a specific amount of money.
Personal belongings: This includes clothing and jewellery; again, some provinces will allow you to keep them all, others up to a certain amount.
Bankruptcy is the last resort option and was used for only 20% of consumer insolvencies in the first quarter of 2024.
The much more common legally protected option is called a consumer proposal. It allows you to reduce your monthly payments by up to 80%, lowers the amount you have to pay back overall, and lets you keep all of your assets, including your car and home.
Only a Licensed Insolvency Trustee can file a consumer proposal on your behalf.
When you co-sign a loan, you are just as responsible for the entire debt as the primary borrower. The purpose of co-signing is to provide a guarantee to the lender that the loan will be repaid. If the primary borrower defaults, the lender can pursue you for the full amount of the debt, including both the principal and any accrued interest, penalties, or fees.
This can have serious implications if the person you co-sign with passes away before the loan is fully repaid, as you are then fully responsible for paying the outstanding balance of the loan.
In essence, co-signing a loan is a commitment to take full responsibility for the debt if the primary borrower cannot or does not make the required payments.
It's crucial for anyone considering co-signing a loan to fully understand the implications and potential risks involved before agreeing to act as a co-signer.
If you’re struggling with debt and feeling overwhelmed, speaking to a Licensed Insolvency Trustee can provide a clear path forward. Our Trustees offer a free, confidential consultation where they will assess your situation and recommend the best options for you.
They are committed to acting in your best interest and providing judgement-free support. They’ll examine all your options and explains how each will affect your situation, so you find the debt relief solution that’s right for you.
August 15, 2024
Trying to find your way out of debt can be stressful and confusing. There’s no shortage of debt myths out there, and it isn’t always easy to separate the fact from the fiction.
