Debt management | What is a creditor?

Qu'est-ce qu'un créancier

What is a creditor? 

A creditor is an entity which is owed money by another entity. This could be a single person, a company or organisation or a government who lended money to another person, organisation or government. 

You will often hear the term creditor used in conjunction with the word debtor, but creditors and debtors are the opposite of each other. Whilst a creditor is owed money, a debtor owes money. In the situation of creditor vs debtor, the creditor is largely in control of the situation as they control the stipulations of the loan. They therefore decide how much they are willing to lend, how long you as the debtor have to repay your debts, and what interest rates they are going to charge. 

One of the best creditor examples is when a person takes out a mortgage. When a mortgage is taken out, the bank is the creditor as they are the entity lending out the money and the person buying the house is the debtor as 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 usually the ones pestering you to repay the money that you owe to the creditor. If you owe money and stop repaying your debts, your creditors will try to directly contact you for a period of time but they will eventually hand 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 because they often work on a commission basis. 

Ultimately, a creditor is the entity that you directly borrowed money from and the debt collector is a third party organisation or individual who has been employed by the creditor to try and get you to repay your debts.

Tips on avoiding debt 

What happens if you ignore debt collectors in Canada?

Debt collectors have the capability to sue you and take you to court. While there is no time limit on how long they can pursue you for the debts, there is a limit on how long until they can sue you. Once the debt has been acknowledged, a creditor can sue you within 2, 3 or 6 years depending on the province you are in. 

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 7 am and 9 pm and between 1 pm and 5 pm on Sundays.) Moreover, although they can contact people you know, they can only do so to find out your contact details and cannot discuss your debt with anyone other than you. Plus, in order to protect the debtor, debt collectors cannot use any form of threatening or deceptive language.

Realistically, if you ignore debt collectors in Canada, apart from them suing you and taking you to court, there is not a lot 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 about you and your debt, record all interactions and see if you can come to some sort of an agreement in regards to managing the debt that you owe. 

What happens when creditors are not repaid? 

There is a common myth that if creditors are not repaid within 7 years, your debt disappears and is written off but this is not true. Although your debt will be written off from your credit report after 7 years, it will not disappear completely. 

However, as previously mentioned, creditors only have a certain amount of time that they can take you to court for defaulting on debt repayment. If they fail to take action and file a lawsuit within this time, there is a statute of limitations that applies, the period of which varies for each province, and they can no longer take legal action. 

This does not mean that they will stop pursuing you to repay the loan. Creditors can continue to follow up and contact you to get you to repay a loan for as long as they want. If creditors are not repaid, one of three things is likely to happen: 

  1. They take you to court and sue within the time frame given. 
  2. They fail to sue you in time but continue to pester you to pay your debts back. 
  3. 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 on how long a creditor can pursue a debt in Canada, so if they are particularly ruthless, you could theoretically continue to be contacted throughout your entire life for a debt that you accumulated when you were twenty and have not yet repaid. 

However, there are limits on how long they can take legal action. Below is a rundown of how long each province and territory has to sue you before they can legally no longer take you to court over 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 

At the end of the day, creditors want to get paid what they are owed, so they will often help you come up with debt management plans that take into account your financial situation. Debt management plans can often come in the form of a consumer proposal in which you make an agreement with your creditor to either pay less of your loan back as a whole, or to extend the time over which your debt is owed so that you pay less per month. 

Ultimately, if creditors are faced with the option of you ignoring all your debts completely or them creating a debt management program with you, they will opt for the latter as it means they will be getting at least some money back. 

You can also put debt management plans in place if you just need a small amount of debt relief. For example, if you have some unforeseen costs in one month, you might be able to contact your creditor and adjust payments for a short period of time to give you some flexibility on your monthly payments plan. As money, loans and legalities are involved in such negotiations, it is not advisable that you deal with all of this on your own. Instead, you should seek the help of professionals 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 the field and can work out the best plan for you to pay off your debts that works for both you as the debtor and your creditor. 

Before enrollment in a debt management plan, and before even talking to a professional, you should put together a budget and a time frame that you think you could respect in order to present it to the creditors. This sets up what is doable for you and negotiations can start from there. 

How do you know if you need debt help?

Knowing whether or not you need debt help can be difficult, especially if you have an accumulation of debts such as student loan debt, credit card debt or debt derived from a mortgage that you are struggling to pay. Getting an external opinion from a licensed insolvency trustee is the best way to analyze your financial situation and determine the best solution to get out of debt. 

Debt relief solutions 

If you want to be debt free, there are a few different avenues of debt relief you can go down in Canada. Here are some of the most common debt relief solutions

Consumer proposal 

A consumer proposal is essentially a plan that is created alongside your creditor as you agree to pay either a lesser amount or increase the time frame you have to repay the debt. If you think this might be the best solution for you, you need to contact a licensed insolvency trustee as they are the only people who can liaise a consumer proposal. 

Book a free consultation 

Personal bankruptcy 

Filing for personal bankruptcy is scary for most, but in some cases it is the best and smartest decision you can make. Nevertheless, it should only be considered as a last resort solution. 

Bankruptcy involves the liquidation of your assets and is a decision that should not be taken lightly. 

Debt Consolidation 

Debt consolidation is a way to make your debts more manageable. The process of debt consolidation is one in which the debtor brings all their debts together and takes out one big loan to pay them all off, meaning they then only have to repay one loan. 

This is a good option if you have lots 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 multiple different loans and simply take out one loan which will generally have a lower interest rate.