The Role of Government as a Creditor of the Disadvantaged

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Queen's Law Journal. Volume 35, Number 2 (2010), p. 539-568.


Economically disadvantaged Canadians who rely on government transfer programs as their primary source of income can accumulate debts to the provincial government when overpayments of benefits are made. Such debts, which are often involuntary, can push them into insolvency, where they have fewer ways of dealing with their debts. The authors examine this phenomenon in the context of overpayments made by the Ontario Works and Ontario Disability Support Programs, and show that the traditional remedies of credit counselling and bankruptcy that are routinely available to middle-class debtors are too costly to be accessible to those with low income. Special collection options available to the government make it a powerful creditor for those who acquire debts from the overpayment of benefits. The government has several collection options. Where the debtor is still receiving benefits payments, the payments can be reduced by up to ten percent until the overpayment has been repaid. In cases where benefits are no longer being paid, and active collection efforts have been unsuccessful, the government can resort to a passive collection method, where tax refunds and tax credits owed to debtors are intercepted by the government and applied to their overpayments. The authors discuss the various debt resolution options available for recipients of government overpayments, and show why low-income debtors often do not have access to those options. They argue that under the current system, collection efforts by the government have a harsh and unequal effect on low-income debtors, who are further marginalized by their inability to access credit counselling or declare bankruptcy. To help meet this problem, the authors argue that debt resolution remedies must be made more accessible to low-income debtors.

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