The following is presented for informational purposes only and is not intended as legal or tax advice. Please consult with a qualified professional for direct advice on your unique situation.
The simplest explanation for why someone might be having trouble paying off their debt is probably the most troubling one: they simply can’t. They don’t have the money. They’re either without income or that income is only enough to cover the barest essentials.
Here at MMI, our debt and budget counselors hear it over and over again. “I want to repay my debts, but I just don’t have the money. What can you do for me?” It’s a fair question. When money is tight, what possible action can you take to reduce your debt? Will debt ever magically disappear if you take no action at all?
Curveballs are a part of life, and occasionally those curveballs can take the shape of unforeseen financial difficulties that prevent you from making your scheduled debt payments. Don’t freak out if you’re worried that you won’t be able to pay off your credit cards or other debts. You have options, and understanding them can help you navigate this challenging situation.
What Happens When You Miss a Bill Payment?
Missing a bill payment isn’t the end of the world, but it’s not something you should take lightly. Here’s what you can expect:
- Interest Charges: You’ll be charged interest on the balance you didn’t pay by the due date. This can add up quickly, so it’s best to catch up as soon as possible.
- Late Fees: Even a day or two late can result in late fees, and if your payment bounces, you’ll likely face an NSF fee from your bank. These fees can add up, making the missed payment even more expensive.
- Credit Bureau Note: A one-time late payment caught within a few days might not impact your credit history. However, if you’re a month or more late, your credit card company will likely report it, potentially hurting your credit score. Late payments can remain on your credit report for up to six years.
Remember, not all lending agreements are the same. Some contracts have an “acceleration” clause that allows the creditor to demand the full balance immediately if you miss a payment. It’s crucial to understand the terms of your agreements to avoid unpleasant surprises.
What Happens If You Stop Paying Your Debt?
If you stop making payments altogether, things can escalate quickly. Here’s what you might face:
- Increased Interest Rates: Lenders often raise your interest rate after missed payments, making your debt snowball even faster. This can be incredibly stressful, especially when you’re already struggling to keep up.
- Debt Collection: Your creditors might start contacting you directly, and eventually, your account could be sold to a third-party collection agency. These agencies are notorious for aggressive tactics, including frequent calls, texts, and intimidating letters.
- Taking Money from Your Bank Account: If you have a bank account with the creditor or one of their affiliates, they might use the “right of offset” to take money directly from your account without notice. This can be a significant blow, especially if you rely on that account for everyday expenses.
- Blocking or Cancelling Services: You might lose access to the credit or account after missed payments, and the creditor might not reinstate it even if you catch up on arrears.
- Legal Action: If a creditor takes you to court and wins, they could:
- Garnish your wages: A portion of your income will be automatically deducted to repay the debt, along with accumulated interest, penalties, and legal fees.
- Seize your assets: Your creditor might place a lien on your home or even seize assets like your vehicle.
- Issue an arrest warrant: This is rare, but it can happen if you fail to appear in court as required.
Although facing legal action can be frightening, it’s vital to keep in mind that it typically takes time. You’ll be informed of the upcoming action, and speaking with a Licensed Insolvency Trustee can frequently help halt or avoid the procedure entirely.
Government Debts and Collections:
Owing money to the government, like Canada Revenue Agency (CRA), is a different ball game. Unlike other creditors, the government can implement extreme collection methods without court permission. You might receive little or no notice before they freeze your bank account or garnish your wages. Government charges against your property can also be difficult to remove.
Filing a Consumer Proposal or claiming personal bankruptcy are generally the only ways to stop government collection actions. If you owe money to the government, contact a local Licensed Insolvency Trustee as soon as possible to avoid the stress and impact of unexpected collection actions.
What Should You Do If You Can’t Pay Your Debt?
Even if you are unable to make your payments, it is imperative that you remain informed about the situation. Examine your mail and statements to make sure your creditors don’t catch you off guard.
Here are some tips to help you manage the situation:
- Stay Calm and Avoid More Debt: Don’t fall into the trap of taking on more debt to pay off existing debt. Resist the urge to use high-interest financing like payday or installment loans.
- Don’t Be Pressured: Don’t let agents pressure you into unaffordable settlement agreements or borrow money from family or friends to pay a creditor.
- Get Professional Help: In Canada, Licensed Insolvency Trustees are the only professionals endorsed by the federal government to help you deal with debt and offer solutions to protect you from creditors. They can help you stop even government collection actions and reduce or eliminate various types of debt.
- Seek Help Early: You don’t need to wait until the problem escalates to seek help. In fact, most people wish they hadn’t waited so long to get professional assistance.
Remember, a debt problem can happen to anyone at any time. Don’t hesitate to reach out for help and get a fresh financial start.
Sands & Associates: Your Partner in Debt Relief
Sands & Associates is BC’s largest firm of Licensed Insolvency Trustees dedicated to helping consumers manage their debt. Since 1990, they’ve helped thousands of people achieve a financial fresh start.
Here’s what Sands & Associates can do for you:
- Provide free consultations to discuss your situation and explore your options.
- Offer solutions tailored to your unique circumstances, regardless of your credit history or score.
- Help you stop even extreme situations involving garnishments or account seizures.
- Reduce or eliminate virtually all types of debt.
Don’t let debt control your life. Take the first step towards a debt-free future. Book your free, confidential debt consultation with a Sands & Associates debt help expert today.
Additional Resources:
- Consumer Proposals in BC
- Personal Bankruptcy in BC
- Debt Consolidation in BC
- Debt Help FAQs
- Find Your Local Sands & Associates Office
Don’t let debt stress you out. Take control of your financial future with Sands & Associates.
What Happens If You Ignore Your Debt?
If you ignore your bills and make no payments, your accounts will become delinquent. If you’ve ever been behind on your payments, you are likely aware that creditors become a little agitated when you don’t make payments as agreed. You’ll likely get phone calls and letters reminding you that you’re past due and asking for a payment.
Eventually, unpaid debts are charged off – meaning the creditor writes them off as a loss. That doesn’t mean the debt disappears, however, or that you no longer owe the money. The debt may be sold to a third-party debt collection agency or transferred to an internal collection department by the creditor.
A debt collection agency has the option to purchase a debt for a small portion of its worth—for instance, $2,000 for a $10,000 debt—but they still have the right to pursue full collection of the debt. They will pursue you for the money, with persistent letters and phone calls. In the end, they might decide to sell the debt again if they are unable to get you to pay, in which case the cycle will start over with a new debt collector.
What’s happening to you during all of this? Well, you might be receiving angry calls and letters, and your debt might be increasing due to various fees, penalties, and interest charges, but your situation hasn’t really changed.
Can You Be Sued for Unpaid Debts?
This debt collection dance could potentially go on for years and years. The creditor of record retains the right to pursue collection efforts even after seven years have passed since the negative marks on your credit report begin to disappear. And you may choose to continue ignoring them. In this case, you don’t really pay anything, but your credit takes a serious hit and you’ve accumulated a neat pile of irate letters. How long can that go on?.
Ultimately, it depends largely on the size of your debt and the disposition of your creditor. Credit is usually extended under an agreement that spells out who’s required to do what. If you stop making payments on your debts, you’ve probably violated the terms of the deal, and the concerned creditor is free to sue you to recover the money. Your wages will typically be garnished if a creditor wins a lawsuit against you; a portion of the money will be automatically deducted and applied to your debt.
The likelihood of being sued increases with the amount of your delinquent debt because it takes time and resources to pursue compensation through the court system. Therefore, if you stop paying, will your specific creditor sue you? Should you assume that a creditor won’t sue you? No. Definitely don’t do that. Although having your wages garnished isn’t disastrous, you should try to avoid it at all costs.