consumer proposal,  personal bankruptcy,  personal finance

What happens when you don’t pay your debts?

I get asked this question a lot when people message me on Reddit asking for advice.

So I thought I’d put together a chronology of what typically happens when a debtor owing credit card debt finds himself in this situation:

  1. You will get calls from the creditor. If you ignore them, the debt will be sent to an agent acting on the creditor’s behalf – usually a collection agency or a law firm.

  2. The agent will likely have your place of employment and banking information on file because you would’ve provided this information to the creditor when you had applied for credit with them. You’ll receive calls, letters and emails from the agent threatening to take legal proceedings to garnish your wages and bank account. If you ignore them, they’ll initiate legal proceedings in small claims court.

  3. The agent must give 20 days notice to you and they will obtain a default judgment against you in small claims court if you don’t file a statement of defence. If you fail to do so, the agent will obtain a default judgment.

  4. A copy of the judgment will be sent to you. If you fail to pay it, the agent will have the Sheriff’s Office issue a Writ of Garnishment to your place of employment (to garnish your wages) and/or your bank (to garnish your bank account).

The only way to stop legal proceedings from starting or continuing is to either settle with the creditor (which in most cases is unsuccessful because you’re probably broke and have no money to settle with) or file a proceeding under the Bankruptcy and Insolvency Act, such as a consumer proposal or a personal bankruptcy.

When an insolvency proceeding is filed under the BIA, a Stay of Proceedings comes into effect which prevents a creditor from starting or continuing any legal proceedings to recover their debts.

The Stay is temporary. It becomes permanent when:

  1. You complete your bankruptcy and you’re discharged from your debts; or

  2. You complete your consumer proposal payments and you’re discharged from the rest of your debts.

Victor is the President of Fong and Partners Inc. He is a Licensed Insolvency Trustee and Chartered Professional Accountant. With many years of experience in the insolvency field, Victor has been involved in both corporate and consumer insolvency engagements. Previously with a large national firm, Victor founded Fong and Partners Inc. so that he could dedicate his professional life to help people from all walks of life to deal with their debt.