The Wolf at the Door: What to Do when Collection Agencies Come Calling

A practical guide for dealing with collection agencies and your debts, from Canada's top expert.

At some point in life, many of us have trouble paying the bills. If you've ever been hounded by a collection agency, you know how intimidating and stressful the experience can be. But we have much more power than we think. In this eye-opening practical guide, industry insider Mark Silverthorn arms you with the information collection agencies don't want you to know. He shows how to turn the tables against them and regain control of your personal life and your finances, including:

- how to stop, avoid, or discourage collection calls
- why you might not even have to pay your debt
- options to deal with your debts that might save you thousands of dollars
- your legal rights and how to handle collection agency misconduct
- the truth about credit counselling and debt settlement firms

Before you take any action on your debt, you will want to read this book.

About the Author

MARK SILVERTHORN has twelve years of experience as a former collection lawyer and collection industry insider. He has two law firms, one in Kitchener, Ontario, and one in Buffalo, New York, that focus on helping consumers in their dealings with collection agencies and creditors. Mark is a regular guest on a consumer advocacy show on CFRB radio and is frequently asked by media to comment on collections and debt relief.

Excerpt. ©Reprinted by permission. All rights reserved.

CHAPTER 1
THE BASICS OF THE DEBT COLLECTION GAME

Before we get into what to do if you’re being hounded by collection agencies or if you’re drowning in debt, it’s important that you understand some of the basics of how debt collection works. This chapter will give you an overview of the process and introduce you to some of the key players.

PRACTICAL TIP
This book will introduce a number of words and phrases you might be unfamiliar with. I will explain them as I go along, and the glossary at the back also defines each term.

As you may know all too well, collectors are the people who call you and call you and call you. They are usually very aggressive and they want you to make a payment as soon as possible. A creditor is a company from which you purchased goods or services, or from which you borrowed money, such as Visa. A debtor or consumer is the person who owes the money: you.

A bill collector is an individual or an organization demanding payment from debtors – for example, your creditor, a collection agency, a lawyer, or one of its employees. A collection agency is an organization that collects money from you on behalf of others and obtains at least 50 per cent of its revenues from this collection work, such as a traditional collection agency or a law firm that does large-volume debt collection work. We will learn more about bill collectors later in this chapter, but the important thing for you to understand here is that they are not always employed by collection agencies.

If collection agencies are calling you, it’s probably about unsecured debt. This is debt for which your creditor has no collateral if you do not pay it, which is why they’re more likely to send those accounts to collections. The most common types of unsecured debts are most credit cards; certain debt typically worth less than $10,000 such as bank overdrafts, lines of credit, and personal loans; certain utilities such as your telephone landline, cellphone, Internet, and cable television subscription; student loans; and outstanding taxes.

With a secured debt your creditor has collateral that it can turn to if you fail to repay your account. A good example of a secured debt is a loan you take out to lease or purchase a car. The lender usually puts a lien on the vehicle, making your car the collateral, so that if you fail to make your payments your lender can re possess your car. Similarly, when you purchase a home, your lender puts a mortgage on your property. The property is the lender’s collateral, and if you fail to make your mortgage payments your lender may take steps to repossess your property. Lenders usually insist on becoming a secured creditor for large personal loans or lines of credit.

Consumer debt includes debt arising from the purchase of goods and services or from borrowing money from a lender other than the government. The following are not consumer debt: unpaid child support and spousal support, and money owing to the government such as unpaid income taxes and property taxes, fines, and outstanding student loans (except Canada Student Loans obtained between August 1, 1995, and July 31, 2000, in which case your creditor is a financial institution and not the Government of Canada).

IMPORTANT FACT
This book is going to be most valuable in helping you deal with your unsecured consumer debt (credit card bills, for example).

In order to deal with your debt situation effectively, you need to be able to identify which of your debts are unsecured consumer debts. One of the things you need to know is whether you have signed a Master Credit Agreement with your financial institution. Without fanfare, over the past several years the banking industry has been quietly reducing its exposure to bad loans on unsecured debt by getting both new and existing customers to sign a Master Credit Agreement. Under the agreement, the financial institution makes a certain amount of credit available to a customer and the customer agrees to provide collateral for this debt – making it secured debt. In most cases the security a banking customer provides is his property – his home, townhouse, or condominium. Many people unwittingly signed these agreements without understanding that they effectively converted some of their existing unsecured debt into secured debt. If you are unsure whether you have signed a Master Credit Agreement with a particular financial institution, you should ask for documentation regarding your loans or sources of credit.

Once you’ve figured out if any of your debts fall under a Master Credit Agreement, you might take five or ten minutes to list all of them in Appendix A: “Worksheet: Profile of Your Current Debts.” This will help you to keep track of, categorize, and identify your unsecured consumer debts, those you might be able to avoid paying altogether through something called a limitation period or that you might be able to settle for less than 100 cents on the dollar. As we’ll discuss, it is possible to negotiate incredible deals with some creditors that allow you to eliminate your debt at huge discounts. I spend the majority of my time as a lawyer doing this for my clients. For instance, I have helped clients who owe more than $25,000 to a certain creditor eliminate their debt for less than $5,000.

Some other terms you’ll come across in the book relate to this practice. A settlement occurs when a creditor accepts one or more payments for less than 100 per cent of the amount owing as settlement in full. This is in contrast to payment in full, whereby a consumer resolves an outstanding account by paying 100 per cent of the outstanding balance. The vast majority of settlements involve a lump sum payment, which is a single payment, versus instalment payments, which happen over a period of time, usually with postdated cheques.

This book contains references to real property and personal property. Real property, also called real estate, includes a house, townhouse, condominium, farm, cottage, or rental property. Any property that is not real property would typically be described as personal property. A car, mobile home, and whatever is not permanently attached to the walls, floors, or ceiling in your residence is personal property.

WHAT YOU SHOULD KNOW ABOUT GOVERNMENT DEBTS

Although the primary focus of this book is how to deal with unsecured consumer debt, many Canadians also owe money to the government, such as the following:

• income tax
• certain Canada Student Loans
• provincial student loans
• government fines, including parking tickets
• overpayment of government benefits
• property taxes
• statutory payroll deductions, provincial sales tax, or GST, if you’re a sole proprietor of a business

Before we continue, I should say a word about this kind of debt, because there are some special considerations you should be aware of when you owe money to the government. First, the government typically attempts to recover 100 per cent of the money owing to it – plus interest and penalties – and is unlikely to agree to settlements of less than 100 cents on the dollar. However, it might be possible to negotiate settlements on provincial student loans. And if you obtained a Canada Student Loan between August 1, 1995, and July 31, 2000, your creditor is a private lender, not the Government of Canada, so may agree to a settlement.

Special Powers Available to the Federal Government to Collect a Debt

The federal government has a number of tools to collect a debt that are not available to any other creditor. Some of my clients have learned about these the hard way.

Jim went to his neighbourhood bank branch to deposit his paycheque, pay some bills, and withdraw some cash. The teller informed Jim that he would be back in a minute. Jim observed the teller speaking to his supervisor. When the teller returned, Jim was informed that his account had been “frozen.” Jim was shocked. He then spoke to the supervisor and was given the name and phone number of someone at Canada Revenue Agency (CRA). When Jim phoned the CRA, the representative told him that his bank account had been frozen in connection with personal income tax that he owed.

In this situation the Canada Revenue Agency issued a requirement to pay, a collection tool the federal government can use against anyone who owes money to it. Most commonly it will issue a requirement to pay to your financial institution, effectively freezing your bank accounts, but if you have a tenant in your home, it could also instruct your tenant to make her rental payments to it instead of to you.

In May of last year, Bill, a recent university graduate, was expecting a nice income tax refund of about $2,500 from the CRA. When Bill received his Notice of Assessment from the CRA he was surprised to learn that he was not going to receive a refund after all because the federal government had clawed it back to help pay off his outstanding Canada Student Loan. The federal government had exercised a statutory right of set-off.

What You Should Know About Canada Student Loans

There is a lot of confusion among Canadians about their outstanding student loans. This section is not intended to be a comprehensive review of student loans, but it will highlight some of the important issues when dealing with them. First, note that Quebec, Nunavut, and the Northwest Territories do not participate in the Canada Student Loan program. These jurisdictions receive money from the federa...