Resources
Debt management | What is a creditor?
A creditor is an entity to which another entity owes money. It can be a person, company, organization or government that has loaned money to another person, organization or government. You'll often hear the term creditor used in conjunction with the word debtor. While a creditor receives money, a debtor owes money. The creditor is largely in control of the situation, as he controls the stipulations of the loan. He decides how much he will lend, how long you have to repay your debts, and what the interest rates will be. One of the best examples of a creditor is someone who takes out a mortgage. When a mortgage is taken out, the bank is the creditor, as it is the entity lending the money, and the person buying the house is the debtor, as it is the entity borrowing the money.
What's the difference between a debt collector and a creditor?
The difference between debt collectors and creditors is that debt collectors are usually the ones harassing you to pay back the money you owe the creditor .
If you owe money and stop repaying your debts, your creditors will try to contact you directly for a while, but eventually they'll turn the task over to a debt collector. Debt collectors will do everything in their power to get you to pay back the money you owe, as they often work on a commission basis.
Ultimately, a creditor is the entity from which you have directly borrowed money, and the debt collector is a third-party organization or individual who has been employed by the creditor to try to get you to repay your debts.
What happens if you ignore collectors in Canada?
Debt collectors can sue you and take you to court. Once the debt has been recognized, a creditor can sue you for the next 2, 3 or 6 years, depending on your province.
There are also Canadian debt collection laws that prevent debt collectors from doing certain things. For example, debt collectors can only call at certain times (Monday to Saturday between 7am and 9pm, and between 1pm and 5pm on Sundays).
Although they may contact people you know, they can only do so to obtain your contact information and cannot discuss your debt with anyone other than you. Finally, to protect the debtor, debt collectors cannot use threatening or misleading language.
In reality, if you ignore debt collectors in Canada, other than the fact that they'll sue you, there's not much they can do. However, they can be persistent and extremely irritating. If you are contacted by debt collectors, the best thing to do is to gather all the information they have on you and your debt, record all interactions and see if you can come to some sort of agreement regarding the management of your debt.
What happens when creditors are not repaid?
It's a common myth that if creditors aren't paid within seven years, your debt disappears, but this isn't true. Although your debt is erased from your credit file after 7 years, it doesn't disappear completely.
However, as mentioned above, creditors only have a certain period of time in which to take legal action against you for failure to repay your debt. If they don't act and file a complaint within this period, a limitation period applies, the length of which varies from province to province, and they can no longer take legal action.
This does not mean that they will stop calling you to repay your loan. Creditors can continue to contact you for as long as they like. If creditors are not repaid, one of three things may happen:
- They'll take you to court and sue you within the time limit.
- They don't sue you on time, but continue to harass you to pay off your debts.
- 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 the creditor is particularly ruthless, he or she could theoretically continue to contact you throughout your life for a debt you accumulated at age 20 and still haven't paid off.
However, there are limits to how long you can be sued. Below is a summary of how long each province and territory has to sue you before you can no longer legally sue 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're owed. So they'll often help you develop debt management plans that take your financial situation into account. Debt management plans can often take the form of a consumer proposal in which you reach an agreement with your creditor to either repay a smaller portion of your loan overall, or extend the term of your debt so that you pay less per month.
In the end, if creditors are faced with the option: you ignore all your debts completely or they create a debt management program with you, they'll opt for the second option, because it means they'll get at least some money back.
You can also set up a debt management program if all you need is a little flexibility. For example, if you have unexpected expenses over the course of a month, you can contact your creditor and adjust payments for a short period. Since such negotiations involve money, loans and legal aspects, it's not advisable to handle all this on your own. Instead, you should seek professional help and contact a licensed insolvency trustee.
How does debt management work?
A debt management plan is usually facilitated by a third party, such as a credit counselor, who is a professional in this field and can develop the best repayment plan for your debts.
Before you sign up for a debt management plan, and even before you talk to a professional, you need to establish a budget and a timetable that you think you can stick to in order to present it to creditors. This helps define what's feasible for you, and negotiations can begin from there.
How do you know if you need debt relief?
It can be difficult to know whether or not you need outside help to manage your debts, especially if you have an accumulation of debts such as student loans, credit card debts or mortgage debts that you're having trouble repaying. Getting an outside opinion from a licensed insolvency trustee is the best way to analyze your financial situation and determine the best solution to alleviate your debts.
Debt relief solutions
If you want to get out of debt, there are several options available to you in Canada. Here are some of the most common debt relief solutions:
Consumer proposal
A consumer proposal is essentially a plan created in collaboration with your creditor, in which you agree to pay a lower amount or increase the time it takes to repay the debt.
If you think this is the best solution for you, you should contact a licensed insolvency trustee, as they are the only people authorized to administer this procedure.
Personal bankruptcy
Declaring bankruptcy is frightening for most people, but in some cases it's the best decision you can make. Nevertheless, it should only be considered as a last resort. Bankruptcy involves the liquidation of your assets, and it's a decision that shouldn't be taken lightly.
Debt consolidation
Debt consolidation is a way of making your debts easier to manage. The debt consolidation process involves bringing together all the debtor's debts and taking out a single loan to pay them off.
This is a good option if you have a lot of different loans and are looking for a way to make your repayments easier and less stressful. It also allows you to avoid high interest rates on several different loans, and to take out just one loan with a generally lower interest rate.