Collecting on a Debt

What is a debt?

Say that someone owes you money. That is a debt. You are the creditor. The person who owes you the money is the debtor. A debt is an obligation that a debtor owes to a creditor. It may be for an agreement to repay a fixed amount of money (for example, a loan) or an agreement to pay for goods or services. This script deals with these kinds of debts. It doesn’t deal with other types of debts, for example, relating to landlord and tenant obligations, family law situations, and mortgages.

Is it worth trying to collect your debt?

No one enjoys collecting debts, but sometimes you have to act quickly to recover money owed to you. First, you should decide whether to proceed at all. If the debt is small, or if the debtor is bankrupt or unlikely to repay anything, it may cost you more time and money to collect than the debt is worth.

If you want to collect, what are your options?

You can:

• hire a collection agency.
• try to collect yourself.
• hire a lawyer to collect the debt for you.

You cannot harass the debtor

Whatever you decide, you can’t take the debtor’s property (except through proper legal proceedings), and you can’t harass the debtor. Check script 252 on “Harassment by Debt Collectors” for more on this.

How much will a collection agency or lawyer cost?

Collection agencies often charge between 25% and 50% of the amount they recover. Lawyers often charge between $200 and $500 an hour, plus expenses. Some lawyers will work for a contingency fee—a percentage of what they recover. So if they don’t recover anything, you don’t have to pay for their services, but you may still have to pay expenses. If you hire a lawyer on a contingency fee basis, you should get a written contract outlining what you will have to pay, and when.

Neither collection agencies nor lawyers can guarantee that they will recover anything.

You can consult a lawyer through the Canadian Bar Association’s Lawyer Referral Service. A consultation for up to 30 minutes is $25 plus tax. That can help you decide what to do.

Two-year time limit to sue

A two-year limit applies to most debts that become due after June 1, 2013. If you don’t start to sue within 2 years, you’ll likely lose your right to collect the debt. There may be a longer time limit for some debts that became due before June 1, 2013. If the time limit is coming up soon for a debt owed to you, and you want to keep your right to collect, you should start to sue as soon as possible. If you are not sure about the time limit, get legal advice before you sue. Because if you start a lawsuit after the deadline, you may have to pay the debtor’s legal costs.

Gather the facts and the evidence

You should gather information and documents relating to the debt. These include:

• the name and contact information of the debtor and any other person or company responsible for paying the debt.
• how and when the debt arose.
• the ability of the debtor to pay.
• the reason why the debt hasn’t been paid, if you know.

The information and documents will help with collecting the debt.

Start by contacting the debtor yourself

A phone call, an email, or a text is often the best first step. Remind the debtor of the debt and ask what they can do to pay the debt and avoid a lawsuit. If the debtor agrees to pay based on a payment schedule, get them to date and sign a written agreement or letter confirming this. But any discussions with the debtor don’t usually extend the 2-year time limit to start a lawsuit. It still applies.

Sending a demand letter may help

A “demand” letter is a letter demanding payment of the debt. You may want to offer practical payment options that you will accept, including payment by credit card or post-dated cheques. The letter can’t threaten to take improper action to collect the debt. But you should end your letter by saying that you “reserve the right to take legal proceedings” or “intend to take legal proceedings” to collect the debt, plus interest and costs of the legal proceedings, if the debtor doesn’t make satisfactory payment arrangements within a certain time (typically 7 to 30 days).

What if you want to sue?

If the debtor does not pay, you may want to sue. You can sue in Small Claims Court or BC Supreme Court if the debt arose in BC, or if the debtor lives in or carries on business in BC. Courthouses for Small Claims Court and Supreme Court are located throughout B.C.

Just starting to sue will sometimes cause the debtor to pay. And once you start to sue, you may be able to collect the debt from the debtor’s employer and others who owe money to the debtor, using “garnishment” proceedings. Script 251 has more information on this.

When can you use Small Claims Court?

Use Small Claims Court if you are suing for $25,000 or less. You don’t have to use a lawyer in Small Claims Court. And it’s less expensive and less risky than going to Supreme Court. If the debtor owes you more than $25,000, you can sue for the maximum $25000 and forget the rest. You start a Small Claims Court lawsuit by filing a Notice of Claim at the right Small Claims Court Registry, often the registry closest to where the debtor lives or carries on business.

The loser in Small Claims Court must usually pay limited legal expenses to the winner.

For more information on suing in Small Claims Court, check the Dial-A-Law scripts on Small Claims Court.

When do you have to use Supreme Court?

To collect more than $25,000, you have to sue in BC Supreme Court. This can be more complicated and expensive than Small Claims Court, and you should hire a lawyer, or at least speak to a lawyer before starting the lawsuit. For more information about suing in Supreme Court, check the Supreme Court website for self-represented litigants.

What happens after you get a court judgment?

If you win in court and get a judgment for the debtor to pay you, you may have several ways to collect the money:

• question the debtor under oath about their income, assets and ability to pay.
• seize or take the debtor’s assets by court order using a bailiff.
• register the judgment against land the debtor owns.
• garnish the debtor’s wages or money owed to the debtor.

How can a lawyer help?

A lawyer can explain your rights, obligations, and options, and give you their recommendations. Specifically, a lawyer can often help by preparing the demand letter and sending it to the debtor on the lawyer’s letterhead. This often gets the debtor to pay. You can consult a lawyer at any time throughout the proceedings, although getting legal advice early is always best.

[updated April 2015]

This information applies to British Columbia, Canada. Last reviewed for legal accuracy by Barry Promislow, Robert Rogers and John Blois.

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