Ten Ways To Make Yourself “Creditor Proof”
July 20th, 2015 by Mark Silverthorn, Former Collection Lawyer
Unsecured creditors can find it difficult to recover monies from people who owe them money. Did you know that it is possible for your creditor to sue you, obtain a judgment against you, and then never collect a penny from you despite the fact that it has obtained a judgment against you?
Ten Perfectly Legal ways to Make Yourself Creditor Proof are:
- Close any bank accounts at financial institutions where you have credit cards, personal loans, lines of credit, or your mortgage.
- Sell your real property (house).
- Avoid ownership of property in your own name.
- Drive an inexpensive Car.
- Close your chequing or savings accounts.
- Avoid owing more than $3,000 to a single creditor.
- Seek employment in a field where you can change employers.
- Take advantage of wage garnishment laws which protect low-income workers.
- Relocate to New Brunswick.
- Move to another Country
If you are experiencing debt problems, you are definitely relieved to hear that you have options, but you probably have a lot on your mind in relation to your debt woes like how to protect your assets from a lawsuit in Canada. A common question that debtors seek answers to is: how can creditors find my bank account or can a creditor take my house in Canada? Fret not, there are a lot of things that you can do—all of which are perfectly legal—that will make it more difficult for your creditors to recover any monies from you.
To help prevent you from being dragged further into the vicious and downward spiral of debts and financial losses, we’ve compiled a guide with helpful tips on how to make yourself creditor- proof. If you are able to effectively use one or more of the following tactics then your creditor might never be able to recover a nickel from you.
Avoiding having monies scooped under a creditor’s “right of set-off”
If you are struggling to pay your debts then it is not prudent to do all of your banking at the same financial institution. Debtors are often worried about whether a creditor can take their house in Canada to settle their debts, but they often overlook the fact that the funds in their bank accounts can be used to pay off creditors or even impending monthly credit card payments. If, for example, you have both a bank account and a credit card through ABC Bank and you do not make your minimum monthly payment on your credit card then your bank has the right, under something called a “right of set-off” to take the amount of your minimum payment out of bank account and use those monies to make the minimum monthly payment on your credit card.
Ideally, if you currently are having debt problems, or you anticipate having debt problems in the future, then you should close all of your bank accounts at a financial institution where you have credit cards, personal loans, lines of credit, or the financial institution where you obtained your mortgage. You can make these payments from a chequing account at another financial institution.
Selling your real property
Creditors are much more likely to sue someone over an unpaid account if the consumer owns real property or a house in their own name. Yes, judgment can be obtained by creditors to take or seize your house in Canada to recover the payments you owe them.
If you anticipate that you will no longer be able to make the payments on your unsecured consumer debt in the future then you should seriously consider putting your real property up for sale. This might enable you to save the equity that you have accumulated in your real property.
Avoiding ownership of property in your own name
Most debtors are often wondering whether creditors can ‘take’ or seize their house in Canada. However, ideally speaking, if you are a debtor, then it’s best to not have any property in your own name. If you are married then any assets that you purchase should be purchased in the name of your spouse. If you are not married then when you acquire an asset in the future then you might want to acquire the asset in the name of a trustworthy family member who not only you trust but also does not have debt problems of their own.
It would be worthwhile to introduce the term “judgment proof” here and what implications it can have for debtors in Canada. There are certain exemptions to the judgments that creditors have obtained against debtors. If these exemptions apply to all your property, wages, and other assets, they make you judgment proof as creditors cannot enforce the judgment. In short, this means that the debtor does not own any or enough property or claims the benefits of exempt property.
One of these exemptions is jointly owned assets – assets that are co-owned by you and another person. As such, these are exempt from judgment unless both of you are subject to the judgment. So it is a good idea for debtors to co-own assets with a co-owner who ideally is free of any debts, if owning an asset in one’s name is unavoidable.
Please note that while judgment proof offers debtors personal creditor protection in Canada (provided the exemptions apply), it does not, however, prohibit creditors from attempting to secure judgment against them or obtain collections by way of phone calls, written notices, or reporting your delinquency to credit bureaus.
Driving an inexpensive automobile
Other judgments to the judgments extend to personal property. Every province in Canada has a law which exempts certain property from seizure by judgment creditors. This law means that if your creditor were to sue you and obtain a judgment against you that some of your property could not be seized by your creditors. This exemption is typically around $10,000 for items found in a residence—furniture, appliances, and clothing.
There is also a specific exemption for motor vehicles which is approximately $4,000 to $6,000 depending upon which province you live in. This means that if are experiencing major financial difficulties it would be more prudent for you to be driving a car with a Blue Book value under $5,000—on which you are making the required monthly payments unless you paid cash for it—as opposed to a more expensive vehicle.
Getting along without a savings or a chequing account
There are two circumstances where, ideally, you want to avoid having a bank account in your own name. Firstly, if you owe monies to the Canada Revenue Agency it will seize monies in your bank account and apply it against monies owing to the Federal Government. The Canada Revenue Agency, unlike other creditors, can do this even if they have not obtained a judgment against you.
Secondly, if you owe monies to any creditor and that creditor, sues you, and subsequently obtains a judgment against you then it can effectively seize monies in any bank account in your name using a garnishment. This is done with a Notice of Garnishment served to the bank, after which the funds (up to the amount owed) that a debtor holds at a bank are seized and handed to the sheriff who in turn hands them to the creditors.
For many Canadians, it is possible to live without a chequing account or a savings account. It is possible to cash a cheque payable to yourself, for a fee, at any one of a number of firms that offer payday loan services. You can cash your cheque at these locations without opening a bank account. You might even want to take advantage of a secured credit card available through a payday loan firm. For example, if you obtain a Titanium VISA through a Cash Money outlet then you can make recurring payments to your creditors—for expenses such as phone bills and internet services– without the necessity of having a bank account.
If having a bank account is somehow not avoidable, consider co-owning it with another person. The bank account garnishment laws in Ontario or anywhere else in Canada allow creditors, who have a judgment against you, to garnish the whole account unless it is a joint account that is co-owned by another person. However there is a caveat: they would still be able to garnish 50% of the account.
Avoid owing more than $3,000 to a single creditor
It is not cost-effective for creditors, especially large creditors to sue consumers for relatively small amounts of money. It is possible that a person might owe $25,000 in unsecured consumer debt but he doesn’t owe more than $3,000 to a single creditor. There is a good chance that this consumer might not be sued by a single creditor because the consumer does not owe more than $3,000 to any one creditor.
Where possible seek employment in a field where you can change employers
If your creditor sues you and obtains a judgment against you, they might try and recover monies from you using a wage garnishment through the courts. In order to do this, your creditor has to find your employer, and serve the appropriate documents on the court and on your employer. Once your employer receives the appropriate documents then it will be necessary for your employer to deduct a portion of your wages from your paycheque and remit it the court for distribution to one or more of your judgment creditors.
If you have a low-paying job in the service industry your creditor will likely not attempt to use a wage garnishment against you because most people will simply quit their job and find another job with a different employer to avoid having any further garnishment of their wages. There are many jobs where employers compete for staff which are well-paying jobs. Dental hygienists would be one such job. If you are a dental hygienist living in a major metropolitan area and a creditor obtains a judgment against you then you might very well quit your job and get a dental hygienist job with a different employer if your current employer were to receive a garnishment notice from the court.
Taking advantage of wage garnishment laws in your province
Depending upon your financial circumstances, and the province in which you live, it might be possible for you to take advantage of the wage garnishment law in your province to mitigate the impact of a wage garnishment.
Take advantage of wage garnishment laws which protect low-income workers
With the exception of Ontario, every province and territory in Canada has a law which has a “minimum exemption” from wage garnishments against the residents of that province. These laws provide some relief to low income consumers whose wages are subject to a wage garnishment. Depending upon your circumstances, some or all or your wages might be protected from wage garnishments.
Bring a motion before a judge to reduce the amount of monies deducted from your pay under a garnishment notice
In virtually every province it is possible for a consumer to bring a motion before a judge in which the consumer is seeking an order from the judge reducing the amount of money deducted from a person’s wages on the basis of financial hardship.
Relocating to New Brunswick
If you owe monies to your creditors then one option you might want to consider is moving to New Brunswick which has been described as a debtor’s haven. I can recall a phone call many years ago with a civil servant, responsible for supervising the conduct of collection agencies in New Brunswick, who described her province as a “debtor’s haven”.
Moving outside of Canada
Creditors, and their authorized collection agents, have a poor track record of recovering monies from Canadians who move outside of Canada. In my twenty-two year career in the collection industry I am not aware of a single instance where a Canadian creditor has sued a Canadian living outside of Canada and successfully recovered any monies from them.
Hopefully this guide helped assuage some of your doubts concerning how to hide money from creditors in Canada or whether creditors can take your house in Canada. We hope you find the right path towards becoming “creditor proof”.
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