Ten ways to make yourself “creditor proof”
July 20th, 2015 by NSS Admin
If you are an unsecured creditor it can be difficult recovering monies from people that owe you money. 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.
If you are experiencing debt problems then there are a number 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. 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. 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 in their own name. 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
If you are a debtor, then ideally you will not 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 family member who not only you trust but also does not have debt problems of their own.
Driving an inexpensive automobile
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.
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.
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 then your creditor might try and recover monies from you using a wage garnishment through the courts. In order to do a wage garnishment 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”. New Brunswick is the only province in Canada which does not permit garnishments. This means that if your creditor sues you and obtains a judgment against you that if you move to New Brunswick and rent, as opposed to owning real property, then you might very well never pay a penny to your creditor in connection with your creditor’s judgment.
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.