Can You Walk Away From Your Debts?

In today’s age of unlimited and very cheap credit many wonder if they are really bound by agreements to repay. The question often asked is simply “what happens if I walk away from my debts?” The answer will come as a shock for most reasonable people. Not much. Now, that answer certainly requires some explanation.

The “not much” clearly only applies for those who have no assets and no employment or employment possibilities. If you borrow money from a lender the main method for enforcing collection is to either garnish wages or seize assets. If you have no job then the prospect of having your wages garnished for re-payment is non-existent. The same applies if you have no assets to speak of. If there is nothing to seize than what exactly can the collectors come for?

The damage to your credit rating however is a big deterrent for most who would wish to walk away from a debt. That said, there are some who care not about future credit possibilities and choose to walk away from their obligations. Obviously, if the money owed was used or lent to purchase and asset such as car or a home than the option of walking away is quite a different story. If you default on a car loan or a mortgage than the bank can and will simply begin court proceedings to enable them to seize the assets for re-sale and settlement of the debt. Keep in mind though, if the courts allow for repossession and the amount owed is not recouped in the sale of the item than you may still be on the hook for the remaining amount.

Many people choose to consult with an attorney or trustee in bankruptcy and explore their options for repayment or re-structuring rather than just walking away from their debts. This will at least allow you to possible recover from the downturn at some point after you have been discharged and allow you to at least access some credit options in the future whereby simply walking away will probably preclude many forms of credit for a much longer period of time.

The option of walking away and taking your chances does not however extend to the Canada Revenue Agency who can and will do everything they can to ensure that they are repaid. From the freezing of bank accounts to the garnishment of wages the CRA has the ability to apply all of these pressures and are able to do so without a court order.

The main take away is to make all reasonable efforts to come to some kind or arrangement with your creditors rather than taking a very big risk in walking away. There are very few instances where there are no other solutions other than walking away.

Using the services of an accountant to help your get your financial records in order is your first beginning to taking control of your debt especially if it is a business.


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Sam Seidman, CPA, CA, LPA
629 Sheppard Avenue West
Toronto, Ontario
M3H 2S3

Telephone: (416) 398-1700
Fax: (416) 398-6226

Chartered Professional Accountant, Chartered Accountant, Licensed Public Accountant


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