Being in debt is stressful. If you start receiving calls from collection agencies, your debt might start to feel scary and overwhelming. You may begin to wonder what could happen if you can’t pay your debts. What are the legal consequences, and could you end up in jail? If you’re new to the country, you might question whether deportation is possible.
Here we explore and clarify what can happen if you don’t pay your bills, and whether debtors’ prison is possible.
Key Points
- Debt is considered a civil matter and is not a criminal offence. As a result, you won’t go to jail if you can’t pay your personal loan.
- There are exceptions, including fraud and ignoring court orders, that can result in jail time.
Can You Go To Jail For Not Paying A Personal Loan?
Let’s start by putting your mind at ease. No, you won’t go to jail if you don’t pay your personal loan or other types of debt, including credit cards, lines of credit, or payday loans.
This is because debt is considered a civil matter and is not treated as a criminal offence in Canada. But, there are some rare exceptions which are typically tied to criminal activities – more on this below.
When Could Jail Be A Possibility?
Not being able to pay your debt is not a criminal offence in itself. Unpaid debt only becomes a criminal matter where police can get involved and jail time is possible in a few cases, including:
Fraudulent Activity
If you were to engage in fraudulent activity such as knowingly taking on a loan that you don’t intend to repay, using false information when applying for a loan or credit, or writing bad cheques, these actions could result in jail time, according to the criminal code.
Contempt of Court
If you ignore a court order, even if the original issue isn’t a criminal matter (such as unpaid debt), this could land you in jail.
For instance, if you declare bankruptcy and refuse or neglect to answer the questions in full or truthfully under oath, you could go to jail.
In this case, it’s not the debt itself that results in jail time, it’s disobeying a legal order.
Debt Related to Unpaid Child Support
If you fail to pay child support, the government can seize any federal payments that might be owed to you. Your passport can also be suspended. If you fail to return your passport immediately as directed, it becomes invalid, and Passport Canada can advise law enforcement, who can fine you up to $5,000, send you to jail for six months, or both.
The courts can also order you to pay a fine or order you to serve time in jail if you don’t make your payments.
The issue in this case is contempt of court. By law, you have to comply with a court’s child support order. You are required to pay the amount set by the court. If you fail to do so, this becomes a criminal matter and can be handled as such.
Can You Be Deported If You Don’t Pay Your Debt?
As a newcomer to Canada, you might worry about deportation if you can’t pay your debts. Rest assured, the Immigration, Refugees, and Citizenship Canada (IRCC) will not deport you from Canada if you fail to make your loan payment.
If you can’t pay your debt, you may face other consequences. For instance, your lender may sell your debt to a private collection agency.
Or, if you owe the government money, they can garnish your wages and use any income tax refund to repay your debt.
What Can Happen If You Don’t Pay?
While you won’t go to debtors’ prison if you fail to pay your loan, what can happen?
- Collection calls and letters. Your lender can try to get their money back using a debt collector. Some lenders may have their own internal collections department, while others might hire a debt collection agency to collect the debt or sell it to a collection agency. You will typically receive a letter from the debt collector before they start calling you.
- Interest and penalties. Lenders will start to charge you if you don’t pay your bills on time. This can include late fees, interest, and non-sufficient fund fees if you don’t have enough in your accounts to cover your bills. These penalties can accumulate over time, making it even more difficult to get out of debt.
- Debt collection. If you fail to pay a personal loan, your lender can send your debt to a debt collector. A debt collector can contact you to try to get you to pay your debt, but they can not threaten you with false or misleading information, such as jail time.
- Negative impact on credit. Your payment history accounts for the largest portion of your credit score. If you miss your debt payments, this can damage your credit score, making it harder to borrow money or qualify for credit in the future.
- Civil lawsuit. A civil case is a private case where a lender or creditor can sue you for unpaid debt, but they can’t send you to jail. Through civil enforcement, creditors may be able to take actions such as seizing your property, or garnishing your wages or bank account.
What Are Your Rights As A Debtor In Canada
When it comes to debt collection in Canada, you do have rights. When a debt collector calls, they must identify who they are and the amount and type of debt they’re looking to collect.
The Government of Canada outlines a number of actions that debt collectors can not do, including:
- Contact your friends or family for information about your debt, unless you have given your consent or that person co-signed on your loan.
- Contact your employer for any reason other than confirming your employment and asking for your business title and address.
- Contact you at work, unless they don’t have your home address or phone number, or they tried to contact you at home and failed, or you gave them permission to do so.
- Contact you on holidays, or Sundays before 1:00 pm or after 5:00 pm, unless you tell them they can.
- Communicate in a harassing or threatening manner. This includes making threats, such as possible jail time.
- Misrepresenting the situation or giving you false information
- Adding additional costs to your debt, such as legal fees.
- Calling you on your cell phone about debt, unless this is the number you provided.
If you want the calls to stop, you can request that the collectors only contact you in writing or contact your legal advisor directly. You can do this by sending a written request through registered mail. Make sure you provide an address where they can reach you and the address and phone number of your legal advisor.
Learn more: What Can A Collection Agency Do To Me In Canada?
Options If You Can’t Pay Your Loan
If you can’t make your loan payment, you do have options, including:
Talk to Your Lender
If you know you’re going to miss a payment, talk to your lender as soon as possible to see if they’re willing to set up an alternate arrangement. You might be able to restructure your payments, set up a payment plan, or defer your payments.
Debt Consolidation Loan
Debt consolidation is when you combine multiple debts into one. This helps to simplify debt repayment, and in some cases, can lower your interest rate. Debt consolidation loans are specifically designed for this purpose.
Balance Transfer Credit Card
Another way to consolidate debt is with a balance transfer credit card. Balance transfer credit cards typically offer a lower or 0% interest rate for an introductory period. This can help to reduce your interest payments and potentially pay off your debt faster.
Credit Counselling
Credit counsellors can help improve your financial knowledge and teach you practical financial skills like budgeting and credit management. Some credit counsellors also offer debt management plans.
In a debt management plan, your counsellor makes an informal proposal to your creditors on your behalf. The goal is to consolidate your debts into one monthly payment. Typically, you have to pay 100% of your debt, but your counsellor might be able to eliminate your interest rate or fees, or extend the time you have to pay your debt. This is a voluntary program; your creditors are not obligated to participate.
Consumer Proposal
A consumer proposal is a formal debt relief program that can only be administered by a Licensed Insolvency Trustee (LIT). In a proposal, you and your LIT put together an offer to your creditors to pay a percentage of your debt, extend the time you have to pay, or both. Unlike a debt management plan, you won’t have to pay 100% of your debts.
Bankruptcy
Bankruptcy is another legal process that can only be administered by an LIT. While you might think of bankruptcy as a punishment, its purpose is to help honest Canadians who are down on their financial luck.
In Bankruptcy, most of your unsecured debts are eliminated. In exchange, you have to sell some of your assets to repay your creditors.
Consider Your Debt Relief Options
In Canada, you will not go to jail simply for not repaying your personal loan. But there are serious financial and legal consequences that can occur as a result of unpaid debt.
If you’re struggling with debt, consider which debt relief options are available to you, or speak with a debt professional like a Licensed Insolvency Trustee for help.
