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]

---

---