Based upon my 22 years of experience in the collection industry there are about 8 key things a consumer can do to make themselves “creditor-proof” to some extent.
It is possible for a consumer to adopt a strategy where the goal is to make if difficult for their creditors to recover any monies from them. In this blog post I am going to describe eight tactics which underpin this strategy–tactics which I have learned over the past 22 years as a collection industry insider. For twelve years I worked as a collection lawyer for four of the ten largest collection agencies operating in Canada. I also took a two-year sabbatical to write my book titled The Wolf At The Door: What To Do When Collection Agencies Come Calling (2010), published by McClelland & Stewart. For another four years I personally negotiated hundreds of favourable settlements on behalf of Canadians struggling with unsecured consumer debt. More recently, I have contributed approximately 100,000 words worth of content to various publications and websites focusing on consumer debt.
#1 Avoid having your monies scooped under your creditor’s right of set-off
If you are currently struggling with debt or you anticipate having problems at some point in the future then you should not have a bank account at the same financial institution that has extended you credit–credit cards, personal loans, or lines of credit, or your mortgage. If you do have a bank account at the same institution which has extended credit to you and you are unable to make a payment to your financial institution on your credit card, personal loan, line of credit or mortgage then it will simply take the money out of your bank account at that institution and make the payment. This is called a financial institution’s “right of set-off”. Each banking day in Canada, Canadian financial institution’s recover hundreds of thousands of dollars from Canadians across the country using the “right of set off”. Many Canadians first learn about the “right of set off” after their bank account has been cleaned out.
#2 Selling any real property that you own in your own name
If you are a creditor the easiest way to recover monies on an unpaid account from a consumer is to sue the consumer, obtain a judgment against the consumer and then place a lien on any real property that the consumer owns in his or her own name. Recovering monies from a consumer can be much more difficult if the consumer does not own any real property in their own name.
If you anticipate that you will be unable to meet your financial obligations at some future date then you might want to explore the merits of selling your real property–to a third party at fair market value–particularly in circumstances where the real property is in your own name. If you fail to make your payments on an unsecured consumer debt your creditor might decide not to sue you because you do not own any real property in your own name.
#3 Avoid owning any property in your own name
If you owe monies to creditors, then ideally, you should not own any property in your own name. If you are married, and you have outstanding debts and your spouse does not owe anyone any money, then any assets that you acquire should be in your spouse’s name. Entrepreneurs, business people, and professionals know this and it is common practice for them to structure their financial affairs to that they do not personally own any assets in their own name.
#4 Owning an inexpensive car
Each province in Canada has a law which provides Canadians with some protections from creditors in terms of property that can be seized by judgment creditors. For example, in most provinces $10,000 worth of household items–furniture, clothing, and appliances are not available to creditors who have a judgment against a debtor. Most provinces have an exemption for an automobile–typically around $4,500 to $6,500. This means that if you require a car and you anticipate some major financial problems in the future that you should seriously consider obtaining a car with a Blue Book value of less than $6,000 or whatever the relevant exemption is for an automobile in your province.
#5 Living without a bank account
There are two circumstances where a Canadian should avoid having a bank account. Firstly, if you owe monies to the Canada Revenue Agency then, in the absence of having a judgment against you, it can seize monies in a bank account in your name. Secondly, if you have creditors, other than the Canada Revenue Agency, who obtain a judgment against you, then if they find your bank account they can seize monies in your bank account–but not more than the amount of the judgment against you.
It is possible for many Canadians to function without a bank account today. It is possible to cash a cheque payable to yourself, at any number of firms that offer cheque cashing services including those offering payday loans–without the necessity of having a bank account. It can be incredibly helpful to obtain a secured credit card available through a firm that offers payday loan services. Cash Money, for example, which has hundreds of locations across Canada, offers a secured credit card which enables you to make recurring payments to your creditors, without the necessity of having a bank account.
#6 Seeking employment in an industry where you can easily change employers
In some cases where monies are owed to a creditor it will sue the consumer, obtain a judgment against the consumer, and do a wage garnishment. Under a wage garnishment the court notifies a consumer’s employer that a portion of the consumer’s wages are to be deducted from the consumer’s paycheque and remitted to the court for distribution to one or more of the consumer’s creditors. The exact amount of money deducated from a consumer’s paycheque will vary, province by province, depending upon the provincial exemption with respect to garnishment of wages. In Ontario, for example, the maximum amount of a debtor’s wages which is available with respect to unsecured consumer debt is twenty percent of the debtor’s take-home pay.
Creditors do not typically try to recover wage garnishments where the consumer has a low paying job–such as someone working in a restaurant–because the person will simply quite their job and get a similar job at another restaurant. This forces the creditor to then find the debtor’s new employer and go through all the time, trouble, and expense of obtaining a wage garnishment at the debtor’s new employer.
If you work in an industry where your skills are in demand then you might be able to defeat a creditor’s attempts to recover monies from you through wage garnishments if you are prepared to change jobs each time your creditor obtains a wage garnishment against you. I anticipate that many creditors, at some point, might give up using wage garnishments if you are prepared to change employers each time they obtain a wage garnishment against you.
#7 Moving to New Brunswick
If you owe monies to creditors then one option for you to consider is moving to New Brunswick which has been described as a “debtor’s haven”. New Brunswick is the only province in Canada which does make garnishments available to judgement creditors. This means that if you are a resident of New Brunswick then you should be in a position to avoid garnishment of your wages and garnishment of your bank accounts–with respect to monies owing on unsecured consumer debt.
#8 Moving outside of Canada
Canadian creditors, and their authorized collection agents, have a poor track record when it comes to collecting monies from people living outside of Canada. In my 22 years in the collection industry I am not aware of a single instance where a Canadian creditor has successfully recovered monies from a non-resident by suing them.
Learn more about how you might be able to become “creditor-proof”
If you would like to learn more about how to make yourself “creditor-proof” then you might want to call me at (866) 996-9941 or (519) 827-5513 or contacting me via e-mail at firstname.lastname@example.org.
If you want to learn more about how you might be able to become “creditor-proof” you might want to arrange a 15 or 30 minute telephone consultation with me.