How does the passage of time affect an unpaid account?
If you do not make a payment to your creditor then there will be consequences—and in some circumstances very quickly. In some situations where you fail to make a payment your creditor might be able to seize monies in your bank account under what is called the right of set-off.
This can happen where you fail to make a payment on a credit card, personal loan, or line of credit and you have a bank account at the same financial institution. Your financial institution can simply take monies out of your bank account at that financial institution to make your overdue payment.
As your account remains unpaid you can anticipate the following: 30 to 60 days overdue: At this point you should anticipate that you will receive collection notices and collection calls from your creditor. Six months overdue: By this stage your account will receive an R9 rating which is the worst possible rating. Typically, at this time your creditor has forwarded your account to a collection agency. Where a creditor chooses to sue a consumer it will likely do so where the account is between six months and two years overdue
Two years overdue: If your creditor does not commence a lawsuit against you within two years of the date of your last payment then it might be difficult for your creditor to recover any monies from you. Seven years overdue: By this time under Ontario law any reference to your unpaid account must be removed from your credit report.
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You may have missed one or more payments on an account such as a credit card, personal loan, student loan, or a line of credit. Consequently, you will likely be receiving collection calls. But who are these people who are calling you?
Most creditors—particularly large creditors—will have their employees call you if your account is less than six months overdue. Many big creditors operate massive call centres, employing hundreds of collectors, calling people who have unpaid accounts. If your account has not been paid for over six months then there is a good chance that your account has been forwarded by your creditor to a collection agency. Under these circumstances, the collection agency is working on a commission or contingency basis. This means that the collection agency does earn a penny in fees unless it recovers monies from you. This might help explain why collectors at collection agencies are often aggressive.
There is also a chance that at some point your original creditor might sell your account to another firm and this firm steps into the shoes of your original creditor. There are two distinct categories of debt buyers. There are traditional collection agencies whose primary source of revenue is collecting unpaid accounts on behalf of others. The second category of debt purchasers are dedicated debt buyers. A dedicated debt buyer is a firm that might employ its own in-house collectors or it may forward its inventory of unpaid accounts to collection agencies.
All debts are either secured or unsecured. In the case of a secured debt, if the debt is not paid, the creditor has some type of collateral it can look to for payment. The best examples are mortgages and liens arising from the purchase or lease of a car. Any debt that is not a secured debt is unsecured debt.
When a debtor has an unsecured debt the creditor has no collateral it can look to if the debt is not paid. Most credit cards are unsecured debt. There are three different categories of unsecured debt: debt owed to the government, debt arising from a consumer transaction, and non-dischargeable debt. Eliminating debt owed to the government can be challenging. Settling government debt is not available nor is credit counselling. Government debt, however, can often be eliminated when the consumer makes a consumer proposal or files for personal bankruptcy.
Eliminating unsecured consumer debt is less daunting. A consumer might be able to take advantage of a limitation period, make a one-time lump sum payment, do credit counselling, make a consumer proposal, or file for personal bankruptcy. Non-dischargeable debts are those debts which cannot be eliminated by making a consumer proposal or filing for personal bankruptcy. These include the following:
Spousal support and child support obligations
Student loans where a person ceased to be a student less than seven years ago
Not all debt is created equal and we see this when a Canadian contacts a licensed insolvency trustee to explore eliminating his debt by way of filing for personal bankruptcy or making a consumer proposal to his creditors. In fact, depending on the type of debt that a consumer has it is possible that only some of his debts might be eliminated when he files for personal bankruptcy or makes a consumer proposal to his creditors
There are two distinct categories of debt which are not discharged or forgiven when a Canadian files for personal bankruptcy or makes a consumer proposal:
A secured debt is a debt where the creditor has some security or collateral it can look to if a debt is not repaid. The most common examples are mortgages and liens arising from the purchase or lease of an automobile. None of a consumer’s secured debts are eliminated when he files for personal bankruptcy or makes a consumer proposal to his creditors.
Furthermore, there is a miscellaneous category of debt—non-dischargeable debts—which are not discharged or forgiven when a Canadian files for personal bankruptcy or makes a consumer proposal. This includes child support and spousal support obligations, as well as unpaid government fines, and civil judgments involving fraud. Finally, student loans are not discharged if the consumer files for personal bankruptcy or makes a consumer proposal less than seven years after ceasing to be a full-time student.