In times of great economic uncertainty, with inflation at all-time highs, money troubles and creditor rights law are top of mind.

There have also been housing prices going through the roof, and recessionary fears amidst central banks contemplating and hinting at large interest rate hikes. There’s little doubt that money troubles are serious for many people these days.

The prospect of going bankrupt or becoming insolvent can be stressful and all-consuming, especially if you have bill collectors and creditors calling at all hours of the day, wondering if you’re going to pay your debts.

But what rights do creditors have when trying to collect on debts from individuals or companies? What is creditor rights law? 

What or who is a creditor and what rights do they have under the law?

Restructuring legal advice

Creditors can be anyone from a big bank or credit card issuer to a private finance company to a family member or friend who lends you money.

Once a sum of money changes hands upon agreement to repay on a given schedule with an agreed-upon interest rate, the receiver becomes a “debtor” while the lender becomes a “creditor.”

Depending on the repayment plan you agree to, the rights of creditors to collect on debt have been firmly entrenched in law for hundreds of years.

Different arrangements and agreements, though, can have different consequences if you fail to pay back the money owed. For example, a bank can lend you money to buy a property and foreclose upon it if you default or advance a sum against the equity you have in your home.

Another example could be a car leasing or financing firm that lends you money to buy a car, with the option of taking the vehicle back if you miss a payment. 

Secured creditor debt

The presence of “collateral” to secure a debt means that the lender, known as a secured creditor, can claim the property offered as collateral if the debtor fails to pay the money back.

On the other hand, unsecured creditors who lend money without the presence of collateral have different rights and options when it comes to collecting unpaid debts that aren’t secured by a piece of property offered as collateral. 

Below are some terms that you should research and be aware of:

• What is secured debt?
• How does personal property repossession work?
• What are the debt collection practices according to foreclosure law?
• What is the best way to protect your real estate using restructuring?
• Which law firms should you speak to for legal advice?

Unsecured creditors, since they don’t have collateral property to seize if the debtor fails to pay, can take you to court and sue you for any unpaid sums.

If they can prove you borrowed the money and were unable to repay it, a court can grant them a judgment that allows them to get a bailiff to seize assets to later sell and square the unpaid debt.

They can also seek a garnishing order in court allowing them to claim a portion of your wages. In Ontario, for instance, the provincial Wages Act allows creditors to make claims of up to 20 percent of your take-home pay.

However, the act allows people who are owed spousal or child support to claim up to half their net employment income.

Creditor Rights Law- Avoiding foreclosure

But for a debt to go to court, it’s likely the last resort for a creditor who has been trying to collect for some time before they go through the expensive and time-consuming process of filing a lawsuit. First of all, there’s no guarantee that they’ll win the case.

Debtors can (and often do) ignore or avoid court proceedings, taking their chance with a default judgment that can be hard or even impossible to collect upon, like the old cliché of trying to get blood from a stone.

A bank car financing company or credit card issuer can sue a person for tens of thousands of dollars and win, but if that person or entity is bankrupt or outside a court’s jurisdiction, then collecting on such debt becomes a cat-and-mouse game or an exercise in futility.

Creditors‘ rights laws provide lenders with other options, such as filing a lien against your property in addition to garnishing wages, but they can also seek declaratory relief against you if, say, you transfer your car or home into the name of a relative to dodge debt.

Known as a “fraudulent conveyance,” a creditor can take a debtor to court seeking not only the sum owed but also for a court to declare that a transfer of an asset or piece of property was designed specifically to make it hard to collect on a debt.

Avoid bankruptcy proceedings

A court can declare asset transfers as fraudulent conveyances If a creditor is successful in proving the move was designed to delay or hinder a debt’s collection, or an outright attempt to defraud the creditor out of a sum of money by disposing of valuable assets that may have been part of the original loan deal in the first place. 

Although somewhat unheard of these days, people could be sent to debtors’ prisons for not repaying loans, though the practice of imprisoning people who owe money hasn’t been eliminated. 

Even though the United States outlawed the practice of imprisoning people for unpaid debts in the 1830s, modern versions of debtors’ prisons involve people getting sent to jail for unpaid court-imposed fines or fees.

Thankfully, modern bankruptcy and insolvency laws give people insurmountable debt options to avoid potentially becoming destitute from unpaid debt. It’s still imperative to speak to a debt law firm.

Creditor rights law conclusion

Bankruptcy and insolvency laws can be a saviour for people buried with debts they cannot repay. The Canadian government, for its part, discusses peoples’ options if they find themselves “consumed” by debt.

Whether it is from multiple credit cards used as a “necessity” rather than a “convenience,” where balances become unmanageable and interest charges pile up when people only make minimum payments, barely making a dent in the original, principal sum. Personal debts at crisis levels can come from any number of sources other than credit cards though. 

Make sure you find a legal expert who practices in the correct practice areas. You don’t want to get poor legal advice, and then find yourself in the middle of bankruptcy proceedings with financial institutions.

If you are the CEO of the company, you might have a duty to shareholders to work with receiverships to help you do corporate reorganization. Sometimes that’s the best way to maximize shareholder value.

We hope this guide on creditor rights law was helpful, and that you can hire a lawyer to assist you in avoiding bankruptcy court. Good luck!