Debtors Prison

How to Avoid Debtor’s Prison

Calls from a collection agency or someone pretending to be the Canada Revenue Agency threatening to take you to debtor’s prison because of an unpaid debt is becoming part of everyday life. I personally can recall at least 5 phone calls from scammers pretending to be the Canada Revenue Agency threatening this exact same thing in the past month or so.

Well is this true? Can you be taken to jail if you don’t pay your debts? Well, the simple answer to this is, NO. They can’t take you to jail for not making payments on your debts (unless you have committed tax evasion which is more fraud than missed debt payments). In fact, the debtor’s prison has not been around since the mid-19th century.

Through the mid-19th century, debtors’ prisons were a common way to deal with unpaid debt. Destitute persons who were unable to pay a court-ordered judgment would be incarcerated in these prisons until they had worked off their debt via labour or secured outside funds to pay the balance. The product of their labour went towards both the costs of their incarceration and their accrued debt. Luckily today such places no longer exist, so there is no need to worry. No one will take you to jail for not making your payments.

Metaphorical Prison

Although there is no physical prison that people are taken to if they don’t pay their debts, a metaphorical prison does exist. At times people may feel like they are in prison as they are trapped and unable to escape their debts. This exists when an individual’s debts accumulate over time and eventually leads one to believe that that is no way to get out from under their debt. They are trapped in a cycle of minimum payments that go only toward interest and are, in essence, imprisoned by their debt. They are unable to live the life they want to due to their debt obligations. This has come to be known as the modern-day debtor’s prison.

I’ve been asked on numerous occasions how to avoid debtor’s prison and the simplest answer I can provide to anyone is BUDGETING. The key is to avoid that gradual buildup of debt that comes with living off your credit. Monthly budgeting is something that was never taught in school and as such it does not come naturally to a lot of people.

During the credit/financial counselling sessions services that are offered by our office, we stress the importance of monthly budgeting. It is a useful tool that can help avoid the modern-day debtor’s prison. We cover the different types of expenses households face as well as discuss methods and tips on how budgets can be adjusted to help one live within their means. We also provide links to government designed financial counselling modules which are flexible and allow you to learn at your own pace, on your own time.

I Already Feel Like I’m in the Debtor’s Prison. What Should I Do Now?

If you feel like you are already imprisoned by your debts the most important thing to do would be to try to eliminate those debts to get a fresh start. You might be thinking it’s easy for him to say, just eliminate my debts, but how can that be done? A Licensed Insolvency Trustee, such as myself, can help you to eliminate these debts either through a Consumer Proposal or a Bankruptcy Filing.

What is a Consumer Proposal?

A consumer proposal is a Government of Canada federally approved program that allows an individual to make an offer, or proposal, to their creditors to pay back a portion of the debt they owe. This method of debt consolidation must be made via a Licensed Insolvency Trustee as there is no other way to file a consumer proposal. A consumer proposal has become the most popular way to obtain debt relief in Canada. Upon the completion of a consumer proposal, the majority of unsecured debts are typically eliminated.

For more information on Consumer Proposal, read “Is a Consumer Proposal Right for Me?”

What is a Bankruptcy?

A Bankruptcy provides protection from your creditors in Canada. It is a federally regulated process that has been made available by the government to allow Canadians from coast to coast to obtain relief from their debts. Bankruptcy is designed to provide an honest but unfortunate person a fresh start. Like a consumer proposal, upon the completion of a bankruptcy, most of the unsecured debts are typically eliminated.

For more information on Bankruptcy, visit our blog “3 Reasons Bankruptcy Could be the Right Choice?

Budgeting Help from Debt Professionals

Under both options, we provide two financial counselling sessions with one of our trained financial counsellors. We discuss how to set financial goals as well as review how to budget income and expenses in a household. I have been told on many occasions by individuals that they feel these sessions helped open their eyes on how to properly balance a household budget.

Thankfully, the physical debtor’s prison of the 19th century does not exist anymore… To learn more on how to avoid the modern-day debtor’s prison and how to eliminate your debts and get a fresh start contact our office for a free, no-hassle, confidential consultation. One of our experienced staff members will help you start a path to obtaining freedom from the modern-day debtor’s prison.

Len Hiquebran, CPA, CA, LIT
Len Hiquebran, CPA, CA, LIT

After completing my articling at a local accounting firm, I spent some time working in industry as a controller of a logging company. Subsequently, I joined Derek L. Chase & Associates Ltd. in 2017 and began working in the insolvency field. In June 2020 I completed my studies and was granted a license by the Federal Government to be a Licensed Insolvency Trustee.



We remain open for business and are fully operational. Offices are open for appointments only, however we are available to serve you remotely. Please contact us to discuss your options during this challenging time.
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