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Debt Management | What is a Creditor?
A creditor is an entity to whom another entity owes money. This can be an individual, a business, an organization, or a government that has lent money to another person, organization, or government. You will often hear the term creditor used in conjunction with the word debtor. While a creditor receives money, a debtor owes money. The creditor largely controls the situation, as they dictate the terms of the loan. They therefore decide how much to lend, the repayment period for your debts, and the interest rates. One of the best examples of a creditor is when someone takes out a mortgage. When a mortgage is taken out, the bank is the creditor because it is the entity lending the money, and the person buying the house is the debtor because they are the entity borrowing the money.
What is the difference between a debt collector and a creditor?
The difference between debt collectors and creditors is that debt collectors are generally the ones who pressure you to repay the money you owe to the creditor.
If you owe money and stop making payments on your debts, your creditors will attempt to contact you directly for a period, but they will eventually assign this task to a debt collector. Debt collectors will do everything in their power to ensure you repay the money you owe, as they often work on a commission basis.
Ultimately, a creditor is the entity from whom you directly borrowed money, and a debt collector is a third-party organization or individual employed by the creditor to attempt to recover your debts.
What Happens if You Ignore Collection Agencies in Canada?
Collection agencies have the right to pursue legal action against you. Once a debt is acknowledged, a creditor can sue you for the next 2, 3, or 6 years, depending on your province of residence.
There are also Canadian debt collection laws that restrict collection agencies from certain actions. For instance, collection agencies can only call during specific hours (Monday to Saturday between 7 AM and 9 PM, and Sunday between 1 PM and 5 PM).
While they may contact people you know, they can only do so to obtain your contact information and are not permitted to discuss your debt with anyone other than you. Furthermore, to protect the debtor, collection agencies cannot use any threatening or deceptive language.
In reality, if you ignore collection agencies in Canada, beyond pursuing legal action, there is not much else they can do. However, they can be persistent and extremely bothersome. If you are contacted by collection agencies, the best course of action is to gather all information they have about you and your debt, record all interactions, and explore whether you can reach an agreement regarding your debt management.
What Happens When Creditors Are Not Repaid?
According to a common myth, if creditors are not repaid within seven years, your debt disappears, but this is not true. While your debt may be removed from your credit report after 7 years, it does not vanish entirely.
However, as previously mentioned, creditors have a limited timeframe to sue you for non-payment of your debt. If they fail to act and file a claim within this period, a statute of limitations applies, which varies by province, and they can no longer initiate legal action.
This does not mean they will stop calling you to repay your loan. Creditors can continue to contact you for as long as they wish. If creditors are not repaid, one of three outcomes is likely to occur:
- They take you to court and pursue legal action within the allotted timeframe.
- They do not sue you within the timeframe but continue to persistently contact you for debt repayment.
- They give up, and you never hear from your creditors again.
How Long Can Creditors Pursue a Debt in Canada?
There is no time limit for pursuing a debt in Canada. Therefore, if a creditor is particularly relentless, they could theoretically continue to contact you throughout your life for a debt you accumulated at age 20 and have not yet repaid.
However, there are limits to the duration of legal action. Below is a summary of the time each province and territory has to sue you before they can no longer legally pursue you for your debt:
- Quebec → 3 years
- Alberta → 2 to 10 years
- British Columbia → 2 years
- Manitoba → 6 years
- New Brunswick → 6 years
- Newfoundland and Labrador → 2 years
- Nova Scotia → 6 years
- Northwest Territories → 6 years
- Ontario → 2 to 6 years
- Prince Edward Island → 6 years
- Saskatchewan → 2 years
- Yukon → 6 years
Creditors and Debt Management
Ultimately, creditors want to be paid what they are owed. Therefore, they will often assist you in developing debt management plans that consider your financial situation. Debt management plans can frequently take the form of a consumer proposal, where you reach an agreement with your creditor to either repay a smaller portion of your overall loan or extend the term of your debt to reduce your monthly payments.
Ultimately, if creditors are faced with the choice between you completely ignoring all your debts or them creating a debt management program with you, they will choose the latter option, as it ensures they recover at least some funds.
You can also implement a debt management program if you only require a bit of flexibility. For instance, if you incur unexpected expenses during a month, you can contact your creditor and adjust payments for a short period. Since such negotiations involve money, loans, and legal aspects, it is not advisable to handle everything on your own. Instead, you should seek professional assistance and contact a licensed insolvency trustee.
How Does Debt Management Work?
A debt management plan is typically facilitated by a third party, such as a credit counselor, who is a professional in this field and can develop the most effective plan for repaying your debts.
Before enrolling in a debt management plan, and even before speaking with a professional, you should establish a budget and a timeline that you believe you can adhere to, in order to present it to creditors. This helps define what is feasible for you, and negotiations can then commence.
How to Determine if You Need Debt Assistance?
It can be challenging to know whether you require external help to manage your debts, especially if you have accumulated debts such as student loans, credit card debts, or mortgage debts that you are struggling to repay. Obtaining an external opinion from a licensed insolvency trustee is the best way to analyze your financial situation and determine the most suitable solution for debt relief.
Debt Relief Solutions
If you wish to become debt-free, several options are available to you in Canada. Here are some of the most common debt relief solutions:
Consumer Proposal
A consumer proposal is essentially a plan developed in collaboration with your creditor, where you agree to pay a lower amount or extend the repayment period for the debt.
If you believe this is the best solution for you, you must contact a licensed insolvency trustee, as they are the only individuals authorized to administer this procedure.
Personal Bankruptcy
Declaring bankruptcy is daunting for most people, but in some cases, it is the best decision you can make. Nevertheless, it should only be considered as a last resort. Bankruptcy involves the liquidation of your assets and is a decision that should not be taken lightly.
Debt Consolidation
Debt consolidation is a method to make your debts more manageable. The debt consolidation process involves gathering all of a debtor's debts and taking out a single loan to repay them.
This is a good option if you have many different loans and are seeking a way to make your repayments easier and less stressful. It also allows you to avoid high interest rates on multiple different loans by consolidating them into a single loan, which typically has a lower interest rate.
