Area of Law: Credit, Debt and Bankruptcy
Answer # 254
Creditor options for collecting debtsRegion: Ontario Answer # 254
The term “creditor” is used to describe anyone you owe money to, including banks, credit card companies, and family or friends who loaned you money. Under the law, creditors can enforce a number of legal rights against you, if the money you owe them is not paid. Their particular rights depend on whether they are a secured creditor or an unsecured creditor.
Rights of secured creditors
A secured creditor is someone who has loaned you money in exchange for your written promise to give them rights to your property if you do not pay back the loan. For example, a bank or leasing company may give you a car loan on the condition that it can take the car if you are unable to repay the loan. Or, a bank may give you a loan to buy a home if you give it the right to take the home if you default on your mortgage loan payments. The property you have given rights to is called “collateral” or “security.”
If you stop making your payments, the secured creditor must generally give you some period of advance notice before actually taking or selling the collateral. The period will vary depending on the type of collateral. Once secured creditors have taken the property and sold it, they will have the right to sue you if the sale did not generate enough proceeds to repay the debt in full.
Rights of unsecured creditors
Unlike secured creditors, unsecured creditors lend you money without taking collateral. As a result, they do not have the automatic right to take specific property if you stop making payments. Instead, they must sue you and obtain a court judgment against you. The judge will give the creditor a judgment against you if the creditor shows that you have failed to repay the loan. Once creditors have a judgment, they can ask the sheriff to take property you own, such as a car, and sell it to pay off the debt.
The creditor can also ask the sheriff to garnish money from your wages, or from your bank account. This means that money could be deducted from your paycheque or withdrawn from your bank account without your permission. Under the Ontario Wages Act, the maximum that a creditor can garnish is 20% of net wages, unless the garnishment is for an order for support or maintenance, then the maximum is 50% of net wages. A court will determine the actual amount that will be taken from your paycheque, and it will be based on your financial situation, and other garnishments that may already be in effect.
If a creditor is threatening to sue you, or has a judgment against you, try to talk to the creditor and arrange a payment schedule where you can pay the debt over time. To protect yourself, make sure the payment schedule is in writing and signed by both you and the creditor.
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