Collecting on a Debt

What is a debt?

Say someone owes you a fixed amount of money. That is a debt. A debt is an obligation owed by a debtor to a creditor. It may relate to 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. But 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 it’s necessary to take decisive action to recover money from someone who owes you it. But first, you should decide whether to proceed at all. If the debt is small, or if the debtor is bankrupt or unlikely to be able to repay anything, you should consider abandoning your collection efforts. The effort necessary to collect the debt and get the debtor to repay you may not be worth the trouble.

If you want to proceed, what are your options?

You can:

• hire a collection agency
• pursue the collection yourself
• hire a lawyer to help you

You cannot harass the debtor

Whatever you decide, you can’t try and take the debtor’s property (except through proper legal proceedings), and you can’t harass the debtor. Refer to script 252 on “Harassment by Debt Collectors” to learn more about 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 $150 and $350 an hour, plus expenses. Neither can guarantee that they will be successful in recovering anything.

There’s usually a two-year time limit to start a lawsuit to collect a debt

This two-year limit applies to most debts that become due after June 1, 2013. If you don’t start proper legal proceedings within this time frame, you’ll likely lose your right to collect the debt. There may be a longer time limit for some debts that became due and were owed before June 1, 2013. If the time limit is coming up soon for a debt owed to you, and you want to preserve your right to collect, you should start legal proceedings as soon as possible.

Gather the facts and the evidence

You should gather information and documents relating to the debt. This includes:

• 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, if known, why the debt hasn’t been paid

The information and documents will help with collecting the debt.

Start by contacting the debtor yourself

A telephone call, an email to a private email address or a text to a private number is often the best first step. Remind the debtor of the debt and ask what steps the debtor can take to pay the debt and avoid legal proceedings. If the debtor agrees to make payments based on a payment schedule, you should get the debtor to date and sign a written agreement or letter confirming this. Note that any discussions or negotiations with the debtor don’t usually extend the time limit for starting legal proceedings, so always keep the time limit in mind.

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’re willing to accept, including payment by credit card or post-dated cheques. The letter can’t include any threat to take improper action to collect the debt. You should, however, end your letter by advising 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 satisfactory payment arrangements aren’t made within a certain period of time (typically 7 to 30 days).

What if you want to start legal proceedings?

If your efforts don’t produce the desired result, you may want to start legal proceedings. You can sue in Small Claims Court or Supreme Court in B.C. if the debt arose in B.C. or if the debtor lives in or carries on business in B.C. Court rooms for Small Claims Court and Supreme Court are found throughout B.C.

Simply starting a lawsuit will sometimes prompt the debtor to pay. And once you start legal proceedings, you may be able to collect the debt from the debtor’s employer and others who owe money to the debtor, using “garnishment” proceedings. Refer to script 251 for more information about garnishment.

When can you use Small Claims Court?

A claim in Small Claims Court is often easier to pursue, without a lawyer, and less expensive and less risky than a claim in Supreme Court. You can use Small Claims Court if your claim is for $25,000 or less. The maximum limit for Small Claims Court is $25,000. If the debtor owes you more than the maximum $25,000 limit, for example $28,000, you can abandon the excess – in this case, the $3,000 – and simply sue for $25,000. A claim in Small Claims Court must be started by filing a Notice of Claim at the appropriate Small Claims Court Registry, which is 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, see the series of Dial-A-Law scripts on Small Claims Court. Also see the provincial government’s Small Claims Court website at www.ag.gov.bc.ca/courts/small_claims/info/guides.htm.

When do you have to use Supreme Court?

To collect more than $25,000, you have to sue in Supreme Court. This can be more complicated and expensive than Small Claims Court, and it’s recommended that you hire a lawyer, or at least speak to a lawyer before launching the lawsuit.

For more information about Supreme Court, you can consult the Supreme Court website for “self-represented litigants” at www.courts.gov.bc.ca/supreme_court/self-represented_litigants.

What happens after you get a court judgment?

Once you obtain a judgment, several remedies may be available to you to collect the money:

• questioning the debtor under oath about their income, assets and ability to pay
• seizing or taking the debtor’s assets by court order using a bailiff
• registering the judgment against land owned by the debtor
• garnishing the debtor’s wages or money owed to the debtor

How can a lawyer help?

A lawyer can advise you about your rights, your obligations and your options, and can provide their recommendations. Specifically, a lawyer can often help by preparing the demand letter discussed earlier and sending it to the debtor on the lawyer’s letterhead. This often brings about the desired result. You can consult a lawyer at any time throughout the proceedings, although getting legal advice early is always best.

[updated September 2013]

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The testing of the claims in a court proceeding at a formal hearing before a judge with the jurisdiction to hear the proceeding. The parties present their evidence and arguments to the judge, who then makes a decision resolving the parties' claims against one another that is final and binding on the parties unless successfully appealed. See "action," "appeal," "argument," "claim," "evidence" and "jurisdiction."

In law, the re-examination of a term of an order or agreement, usually to determine whether the term remains fair and appropriate in light of the circumstances prevailing at the time of the review. In family law, particularly the review of an order or agreement provided for the payment of spousal support. See "de novo," "family law agreements," "order" and "spousal support."

A sum of money or an obligation owed by one person to another. A "debtor" is a person responsible for paying a debt; a "creditor" is the person to whom the debt is owed.

A duty, whether contractual, moral, or legal in origin, to do or not do something. See "duty."

A court proceeding in which one party sues another for a specific remedy or relief, also called a "lawsuit" or a "case." An action for divorce, for example, is a court proceeding in which the claimant sues the respondent for the relief of a divorce order.

A person licensed to practice law in a particular jurisdiction by that jurisdiction's law society. See "barrister and solicitor."

Something which can be owned. See "chattels" and "real property."

Facts, or proof tending to support the existence of facts, presented to a judge at a hearing or trial. Evidence can be given through the oral testimony of witnesses, in writing as business records and other documents, or in the form of physical objects. Evidence must be admissible according to the rules of court and the rules of evidence. See "circumstantial evidence," "hearsay" and "testimony."

Under the Family Law Act, a term that describes the time a person who is not a guardian of a child, including a parent who is not a guardian, has with that child. Under the Divorce Act, a term that describes the time a person who is not a married spouse has with a child. See "guardian" and "parental responsibilities."

A letter describing a legal claim sent to the person against whom the claim might be made, offering to settle the claim without the necessity of legal action on terms set out in the letter. Demand letters are usually issued before court proceedings are commenced to try to settle a potential claim without the need for litigation.

In law, a calculation of the allowable legal expenses of a party to a court proceeding, as determined by the Supreme Court Family Rules. The party who is most successful in a court proceeding is usually awarded their "costs" of the proceeding. See "account," "bill of costs," "Certificate of Costs or Expenses" and "lawyer's fees."

(1) The assertion of a legal right to an order or to a thing; (2) the remedy or relief sought by a party to a court proceeding.

Normally referred to as the "Supreme Court of British Columbia," this court hears most of the trials in this province. The Supreme Court is a court of inherent jurisdiction and has no limits on the sorts of claims it can hear or on the sorts of orders it can make. Decisions of the Provincial Court are appealed to the Supreme Court; decisions of the Supreme Court are appealed to the Court of Appeal. See "Court of Appeal," "jurisdiction," "Provincial Court" and "Supreme Court of Canada."

(1) In law, a court proceeding; a lawsuit; an action; a cause of action; a claim. (2) A historic decision of the court; case law. See "action," "case law, " "court proceeding," and "precedent."

(1) A central office, located in each judicial district, at which the court files for each court proceeding in that district are maintained, and at which legal documents can be filed, searched, and reviewed, or (2) a courthouse.

A judge's conclusions after hearing argument and considering the evidence presented at a trial or an application; a decision, the judge's reasons. A judge's written or oral decision will include the judge's conclusions about the relief or remedies claimed as well as the judge's findings of fact and conclusions of law. A written decision is called the judge’s "reasons for judgment." See "common law," "conclusion of law," "finding of fact" and "final judgment."

In law, a guarantee of the truth of a statement secured by one's faith in a god, and the prospect of torment in the afterlife in the event the promise is falsely made. People making affidavits and giving oral evidence in court will often give their evidence under oath. See "affidavit," "affirm," "perjury" and "witness."

A mandatory direction of the court that is binding and enforceable upon the parties to a court proceeding. An "interim order" is a temporary order made following the hearing of an interim application. A "final order" is a permanent order, made following the trial of the court proceeding or the parties' settlement, following which the only recourse open to a dissatisfied party is to appeal. Failing to abide by the terms of an order may constitute contempt of court. See "appeal," "consent order," "contempt of court," "decision" and "declaration."

Real property; a parcel of real property and the buildings upon it. See also "chattel," "ownership" and "possession."