The coronavirus pandemic has created financial uncertainty worldwide. On both governmental and personal levels, the effect of the pandemic is reflected in an unprecedented situation in relation to debt in Canada.
According to a BBC report, around a third of the workforce in Canada has been forced into unemployment due to coronavirus, subsequently causing a strain on finances. This challenging situation is reflected in the Canadian government deficit as they have attempted to roll out support programs to provide financial aid to those in need.
These systems along with a halt on debt collection has proven effective in helping families, individuals and businesses across Canada stay afloat and ensure their credit score is not negatively affected.
However, these systems will not be in place forever, and debt collection has already been given the green light to restart. Therefore, a lot of people in Canada are finding themselves in a compromising position regarding their own debt. In order to alleviate as many of your worries as possible, here is a guide to debt collection where we explain what debt collection is, how to deal with collectors and ultimately how to make sure your situation does not worsen.
What is debt collection?
Debt collection refers to the process of procuring money from an individual or business who has amounted unpaid debt.
The usual process often involves a company passing off your financial account to a third party collection agency who will then be in contact with you to retrieve the money that you owe. The original creditor will have attempted to contact you to ensure you pay them what they are owed, however, if you don’t pay, they pass your details on to a debt collection agency who take on the work to get you to pay or until a debt settlement is agreed upon.
Transferring your details to a third party is the best way for the original company to reduce the resources they spend following up with you. It is also an effective tool to intimidate you into paying as quickly as possible, but be rest assured that there are systems in place in Canada to protect you from the intense and abusive debt collection behavior often portrayed in the media. Dealing with debt does not need to be as scary as you think it is.
What happens if you ignore a debt collector?
Ignoring a debt collector isn’t the best course of action. Collection agents can be relentless in their quest to get you to pay off the loans that you owe, from constant phone calls to inundating you with letters, they will do anything in their power to get your attention. They can also go a step further and issue you with a summons forcing you to face the debt head on in court.
Ultimately, accumulating debt will negatively affect your credit score, so ignoring the debt collector is not the answer. Creating an open dialogue between yourself and the collection agency or the original creditor is the best way for you to quickly come to a solution, ease your mind and limit the damage done to your credit score.
What should you not say to debt collectors?
As much as collaboration and open conversation is encouraged to come to an amicable solution with your debt collector, there are also key things that you should be aware of when talking to them. Conversing with collection agencies is a fine art, so here are a few things you should be aware not to say when talking to debt collectors:
Do not disclose any of your personal information
As mentioned, phone calls are a debt collector’s favorite way to contact you. They will be incessant with these calls trying to get you to give over as much personal information as they can get from you; don’t give it to them.
They will likely push their luck and ask for information ranging from your credit card information to your basic personal details. Make sure they know from the outset that you will only respond to written communication so that you have a record of all communication if you need to defend yourself at any point.
Do not offer your bank details
Following on from the previous advice, do not provide debt collectors with your bank details, you are in no way obliged to give them this information. It is a debt collector’s job to try and get you to pay the full amount you owe as quickly as possible so they will try as hard as they can to gain your bank information as it is the best way to secure this.
Handing over your bank account or credit card details removes any leverage you could have, so don’t give it to them, no matter how often they ask for it.
Do not admit to the debt
Possibly the most important thing to remember when talking to debt collectors; do not admit to the debt. The second you admit to the debt you become unable to fairly defend yourself against the debt or any loans that you owe.
The debt will appear on your credit report, and if you try to dispute its presence, your admittance to procuring the debt will land you in trouble. Keep an innocent until proven guilty mentality as many collectors will even try to collect more than you legally owe. It’s best to say nothing rather than say the wrong thing.
What happens if your debt is sent to a collection agency?
When your debt is transferred from the original creditor to a collection agency, there is a specific protocol that is followed, and a plethora of outcomes that can ultimately be achieved.
The first thing you’re likely to receive is a notice before the collection agents get into direct contact with you. This notice is going to lay out the key information of the debt you owe, including:
- The name of the collection agency
- The name of the original creditor
- The amount of money you owe
Once this information has been distributed to you, you are then expected to rectify your debt and pay back your loans or any money that is owed. If you are unable to pay back the debt for whatever reason, there is a possibility for negotiations and alternative outcomes, such as:
- Offer to pay a lump sum
- Look into hardship programs
- Negotiate a payment plan
- Consider debt consolidation loans
If after considering all your options, you are unable to come to a negotiation that works for all parties involved, the next steps of the collection agency could be as follows:
- Court Summons
- Continued attempts to collect
- Drop your case (the best case scenario)
5 Tips to deal with debt collectors
Now that you are fully aware of the processes and protocol involved in debt collection, here are some tips to deal with debt collectors to ensure the experience is as efficient and stress free as possible for you.
1. Clear Communication
As has been exemplified throughout, clear communication is key to coming to an amicable end in your journey with debt collectors and agencies. Maintaining a dialogue with debt collectors presents you as a reasonable individual, hence encouraging them to work with you as opposed to against you. Whilst it’s important to be wary of the kind of information you share, it is equally important to create useful conversation with them.
2. Do not be intimidated
This tip is easier said than done, but it is integral when dealing with debt collectors. A terrifying image is painted of debt collectors and loan sharks in order to scare you into paying up without asking questions; don’t let them intimidate you into blindly doing whatever they say. Take the time to fully look into your account, credit and alleged debt so you aren’t terrorized into illegitimate fees or interest. Moreover, you might even be able to dispute the debt if you calmly look into what you are really dealing with.
3. Look into the timeline
If you fully understand the origin of your debt, you should be able to decipher the time frame of your debt, most importantly, how far along you are from its inception. The credit bureau purge policy ensures that any debt with six or more years of inactivity will automatically be purged from your credit report. There is therefore no point in paying back a debt that will not actually affect your credit report in the near future, you could save yourself a lot of money by keeping this in mind.
4. Get everything in writing
It is very important that all your liaisons with the debt collection agency is in writing. By limiting yourself to written communication only, you leave yourself a strong paper trail to refer back to. For example, if you negotiate a smaller repayment, then are later reprimanded for not paying your original debt in full, without your negotiations written down, it becomes hearsay and you can be further prosecuted, creating problems on your credit report and further damaging your credit score. Therefore in order to completely cover yourself, ensure everything goes through official channels and you have everything in writing.
5. Get your facts straight
Make sure you are fully aware of your credit history, what you owe, the timeline of your debt and any other information relevant to your loan. This way you can make sure you are not being overcharged in any way and know if there are payments that you don’t need to pay. It also means it is harder for the collectors to intimidate you if you know your rights and have all your facts in line.
The truth behind debt collection in Canada
There is a lot of false rhetoric around what debt collectors are legally allowed and not allowed to do. Luckily in Canada, legislation is in place, with enforcements similar to that of the federal trade commission is the USA, to ensure your rights are protected and debt collectors cannot abuse their power. So, what exactly can debt collectors do and not do?
What debt collectors can do
- In addition to contacting you, debt collectors are within their rights to contact your friends and family. However, they can only contact them to get your telephone number or address.
- There are specific times in which you can’t be contacted. Monday – Saturday between 7a.m. and 9p.m. or Sundays between 1p.m. and 5p.m.
- If you are not paying and the collectors want to put pressure on you and take it further, they can take you to court.
What debt collectors can’t do
- Debt collectors cannot contact you on holidays.
- They cannot encourage someone that you know to pay your debts for you.
- They cannot exhibit aggressive behavior. This includes intimidation tactics and abusive language.
- Use misleading or false information.
- Debt collectors cannot contact you on your cell phone, unless you have specifically provided them with your cell phone number.
- Some provinces in Canada have limits on how often debt collectors can call you. Check your local legislation to see if this could apply to you.
- Debt collectors cannot go forward with lawsuits, wage garnishment or jail time without first taking you to court and winning.
Collectors always have to go through the proper channels exhibiting unaggressive behavior when trying to obtain repayments. Keep this in mind when dealing with them as it helps you remember that you still have autonomy and power in this situation. The ultimate aim here is to come to an agreement with your creditors or the collection agency in order to resolve your situation as quickly as possible to avoid any and all further damage to your credit report and credit score.
If you don’t know how to manage your debt, there are different solutions out there depending on your situation and your needs. Don’t hesitate to contact Groupe Serpone if you want to learn more about our services.