Money problems often sneak up on consumers, and few people are prepared to face unexpected financial hardships that leave them unable to repay their debts as planned. If you’re worried about being unable to pay your credit cards or other debts, read on to learn about what can happen if you find yourself dealing with a debt problem, unable to pay your bills – and where you can get debt help.
What Can Happen if You Miss a Bill Payment?
A one-time missed payment for a credit card bill or similar debt isn’t a catastrophe, but it is a financial mistake that will usually come with some cost. If you realize you’ve missed your bill payment, get it paid off as soon as possible – or at least make the minimum payment due.
For a late payment you could anticipate possible consequences such as:
- Interest Charges: You will of course be charged interest on the balance on your credit card that wasn’t paid off before the due date.
- Late Fees: Even if you make your payment a day or two after it was due, you’ll probably be charged a late fee, and an NSF fee if your payment bounced. You may also be charged an NSF fee from your bank, making a missed payment potentially quite expensive. Late fees and/or penalties will get added to your principal balance, meaning they’ll accumulate interest if your balance isn’t paid off in full.
- Credit Bureau Note: With a one-time late payment that you catch up within a few days you may not have any impact to your credit history report. If you make your payment a month or more later though, your credit card company will likely report these late or missed payments, which can result in your credit score taking a hit. Late payments can remain on your credit report up to 6 years from the date reported.
The consequences for making a single credit card payment late generally won’t be too severe but understand that not all lending agreements and contracts are the same. For example:
- If you miss payments on your cellphone you might have your services suspended and need to pay a reconnection fee.
- Many people don’t realize that some borrowing agreements have an ‘acceleration’ clause which lets the creditor demand the full balance immediately if part of the agreement is broken (like missing payments).
For specific credit or service accounts, it’s a good idea to be proactive and check the terms to prepare yourself on what penalties there are if you’re unable to meet your payment or other obligations.
What Can Happen if You Stop Paying Your Debt?
If you stop making payments on your credit cards or other general consumer debts, your creditors will usually charge you a fee for defaulting on payments and start reporting those missing payments on your credit history. Remaining unpaid, your creditors may also do some, or all, of the following:
- Raise Your Interest Rate: Lenders often increase your interest rate after you’ve had a series of missed credit card (or similar) payments. Unfortunately, losing what was often a ‘preferred annual rate’ will make your account balance get even bigger, faster. This can be extremely stressful, especially if you’re already struggling to pay down your balance.
- Send Your Account to a Collection Agent: In-house collection departments may start contacting you and your account may later be sold to a third-party collection agency.
- An outside collection agency is normally engaged after three months of delinquency . Many people feel intimidated and overwhelmed at this stage, and collection calls or texts can be frequent. You may also receive upsetting letters threatening that collection methods will escalate even further.
- Take Money from Your Bank Account (“The Right of Offset”): If you have a bank account with the creditor you owe the debt to (or one of the bank’s affiliates), the lender may take money directly from your bank account for missed payments – without notice to you. This is called the ‘right of offset’ and frequently happens if you have a regular day-to-day bank account with the same bank with which you have the debt.
- Block or Cancel Services: You may lose access to the credit / account after a period of missed payments and the creditor may not be willing to reopen the account even if arrears are repaid in full.
- Start Legal Action: If a creditor is successful in taking court action against you, the following may happen once they have received a court judgment:
- Wage Garnishee: Your creditor may get permission to take money directly from your wages or other income. Accumulated interest, penalties and legal fees may also be tacked on to what you must repay.
- Asset Seizure: Your creditor might be allowed to place a lien on your home, or even outrightly take an asset such as a vehicle.
- Arrest Warrant: Your creditor may ask the court to issue a warrant for your arrest if you don’t appear as required at a court hearing, although this is rare.
Having legal action taken against you is understandably among the greatest fears for many people who are facing a debt problem. One piece of good news though, is that in general, arriving to an outcome like a judgment, wage garnishment, etc. usually takes some amount of time to complete and you will receive notice of the impending action. By reaching out to a Licensed Insolvency Trustee, most court actions for debt payments can be stopped or prevented from starting.
What You Should Know if You’re at Risk of Legal Action for Unpaid Debt
Finding out that your creditor has started a court action can be very stressful and scary – don’t postpone getting debt advice from a Licensed Insolvency Trustee. We can often stop the court process from happening and block an ongoing garnishment.
Government Debts and Collections
If you have outstanding amounts owing to Canada Revenue Agency (personal income taxes, business GST, CERB overpayments, etc.) or have been postponing filing tax returns because you believe you will owe, take a proactive approach instead of waiting.
- A government creditor such as Canada Revenue Agency (unlike other creditors), can implement extreme collection methods without permission from the court.
- You may have very little notice, or none at all, when it comes to a bank account freeze or wage garnishment put in place by the government.
- Government charges registered against your property can be difficult to remove.
Filing a Consumer Proposal or claiming personal bankruptcy are generally the only two methods to put a halt to government collection actions against you. Contact a local Licensed Insolvency Trustee for help with government debts as soon as possible so that you can avoid the stress and impact of an unexpected government collection action against you.
What Should You Do if You Can’t Pay Your Debt?
Once you begin to default on credit cards and other debt payments, usually the problem isn’t going to clear up on its own. If you’re no longer able to pay your debts or you think you soon won’t be able to, consider the following tips which may help you mitigate and manage your situation:
- Don’t Ignore the Problem: Even if you can’t make your payments, it’s important to remain aware of what is happening with your accounts. Review your statements and mail as usual so you’re not caught off-guard by your creditors. Though it may be tempting to not open mail that you know brings only bad news, it’s imperative that you stay informed:
- Avoid being caught unaware of upcoming court dates or collection action – always open all correspondence immediately.
- If collection calls are getting to you, BC consumers have the right to request their creditors contact them in writing only.
- Stay Calm and Avoid Taking on More Debt: If you can’t make payments, it’s critical that you take steps to avoid taking on more debt (besides the accumulating interest, which can’t be helped).
- Agents may try to push you to unaffordable settlement agreements; or you may be tempted to go further in debt by using high-interest financing like payday or instalment loans.
- Don’t be pressured into payment commitments you can’t make, especially if it means more debt, including borrowing from family or friends to pay a creditor.
- Canada Revenue Agency does NOT threaten deportation or jail-time, nor do they accept payments via wire transfer, gift cards or bitcoin. If you have been contacted by an individual making such claims, it quite likely is a scam.
- Get Professional Help to Understand Your Legal Debt Options, Rights and Remedies: In Canada only one professional is fully endorsed and authorized by the federal government to help you deal with your debt and offer solutions that will protect you from your creditors – a Licensed Insolvency Trustee.
- Even if creditors have successfully received a garnishment order, connect with a Licensed Insolvency Trustee for help (as soon as possible). We can offer options that will effectively stop even government collection actions and either reduce or altogether eliminate virtually all types of debt.
- You don’t need to ‘qualify’ for debt help from a Licensed Insolvency Trustee. Regardless of your credit history or score, all Licensed Insolvency Trustees offer a free consultation to talk about your situation and explore your options.
- Although we can certainly help you resolve even extreme situations involving garnishments or account seizures, you don’t have to wait for the problem to escalate to seek help.
Whether you have concerns about one missed payment, or you’re ‘getting by’ making your minimum monthly payments – we encourage you to understand your options early on. You don’t have to wait for the problem to escalate to seek help, and from our experience, most people wish they hadn’t struggled for so long before getting professional assistance.
A debt problem can happen to anyone at any time – and everyone deserves the opportunity to get help and a financial fresh start. If you’re worried about paying your debts, the best course of action is to connect with a Licensed Insolvency Trustee.
Advice, solutions, and non-judgmental support is available 7 days a week – book your free, confidential debt consultation with a debt expert who cares.
About Sands & Associates – BC Licensed Insolvency Trustees
Sands & Associates is BC’s largest firm of Licensed Insolvency Trustees focused exclusively on helping consumers manage their debt. Since 1990 we’ve helped thousands of people get a financial fresh start.
Sands & Associates President and Licensed Insolvency Trustee Blair Mantin joined Breakfast Television Vancouver and Global News to talk about what can happen if you find yourself unable to pay your bills – and what you can do if you need debt help. Watch the clips here:
Take the first step towards your debt-free future – book your free, confidential debt consultation with a local Sands & Associates debt help expert today.