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What Legal Actions Can Creditors Take If You Can't Pay Them

What Legal Actions Can Creditors Take If You Can’t Pay Them

When you have debt that you cannot pay, creditors can find ways to recover the debt you owe.  

Ignoring your debt and not responding to debt collectors does not work, as your creditors have legal ways to pursue money owed to them. Depending on the type of debt and the amount, your creditors might pursue a range of legal actions. 

If you are struggling with debt or falling behind on your bill payments, it can be helpful to explore your options for debt relief before creditors pursue legal action. 

What can creditors do, legally, if I can’t pay them? 

Lenders have certain rights and methods to collect any unpaid debt legally. Many creditors will inform you about these when you sign the terms and conditions for new loans or credit.

Some common legal actions creditors take are: 

  • Informing the credit bureaus
  • Charge you late fees and penalties
  • Send your account to collections
  • Take you to court 

Credit Report

Credit Report

Often the first thing a lender will do is report unpaid loans to the credit bureaus. The debt will be marked late and can impact your credit score negatively. 

A low credit score indicates bad credit, and bad credit can affect your ability to buy a home, rent a place, or even get a job in some cases. 

Late fees and penalties

Your loan contract typically outlines fees for late payments or penalties if you do not make payments on the due dates. 

Some creditors may even increase your interest rates if you are consistently late on your payments. You might notice this on your credit cards and credit lines. Higher interest rates can make the existing and new debt more expensive. 

Send your accounts to collections

Usually, lenders will try to collect any debt first themselves. However, they will send unpaid accounts to a collection agency if they cannot. 

Collection agencies earn a fee based on the amount of debt they recover. For this reason, they are often relentless in pursuing unpaid accounts, trying to recover as much debt as they can. 

Once your creditors send your account to collections, debt collectors will likely call you and your guarantors, demanding payments. However, they are not allowed to threaten you or be abusive. If your account is with a collections agency, it is essential to understand your rights as a debtor. 

Take you to court 

Depending on the loan amount, and if lenders have exhausted other options, they may threaten legal action and take you to court to sue you for the debt you owe.

What can creditors do to collect on your debts? 

If you owe a debt, creditors may collect the debt through various means. 

When you have secured debt, for example, a mortgage or car lease guaranteed by collateral, lenders can foreclose your home or repossess the car. 

In other cases, where you have unsecured debt and no collateral to the loan, creditors can sue you in court. If they are successful, they may take over some of your assets for unpaid debt.

Seize your assets

Secured debts, like your mortgage or car loan, are guaranteed by the assets you own. 

When you cannot pay secured debts, the lender can take over your car or home tied to your debt. 

The lender can then either repossess your assets or sell them to recover the money you owe and sue you for the balance. 

Freeze your bank accounts 

If the lender cannot recover your debt, they can apply to the court to freeze your bank accounts and seize the funds available. If that is not enough, they may even be able to take over future deposits, like your paycheques, to settle your debts. 

Right to offset

If you owe money to a bank and have funds in an account in the same bank, the bank can use the money available to pay down the debt balance against the debt you owe. 

Similarly, the CRA will settle any unpaid tax debt using any tax refunds you are entitled to receive. 

Garnish your wages

Garnish your wages

Wage garnishment is a legal process where a creditor can request the court to settle the debt by sending the lender a part of your wages. 

When you’re already living paycheque to paycheque, a wage garnishment can severely affect your day-to-day life. 

How to find debt relief if I can’t pay my creditors? 

Typically a few late payments will not trigger any legal action. But if you find yourself starting to fall behind, it might be a sign that you need to find debt relief. 

Ignoring your debt and not responding to debt collectors will not make your loans disappear. 

If you are struggling with debt or falling behind on your bill payments, explore your options to pay down your debt before creditors pursue legal action. 

Debt consolidation, consumer proposals, and bankruptcy are a few ways to resolve your debt.

In particular, consumer proposals and filing for bankruptcy can prevent creditors from pursuing their debt through a Stay of Proceedings. Legally, creditors must stop any legal action against you related to the debt you owe. 

Debt Consolidation

You can trade in all your old debts for one new debt with debt consolidation

If the debt consolidation is at a lower interest rate, it can help you pay back the debt faster. Often, this is possible if you can enter into a secured loan agreement where you offer collateral, or a co-signer can guarantee the debt consolidation. 

Consumer Proposal 

A consumer proposal is a formal, legally binding plan that may be an option for you if you cannot pay back your loans. This process can help relieve your debt and stop creditors from threatening you to collect your debt. 

You create a plan on how much you can pay back to your creditors. If your creditors accept, you pay them back monthly over a maximum of five years with no interest.  Consumer proposals can reduce your debt and make it more manageable. 


Bankruptcy is another legal choice to help you get out of debt. 

Once you declare bankruptcy, your creditors are notified, and you stop making payments on any unsecured debts.

Creditors will stop harassing you. They will no longer be able to contact you to collect the debt or take any legal action against you. 

Explore your options to get debt relief

If you are behind on your bills and want to explore your debt-relief options, we have debt experts at EmpireOne Credit who can help.

Our team can help you explore your options to find a way out of debt and set you up for a better financial future. Contact us for a free consultation.

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