Introduction to Debtors' Options (10:IV)

Being in debt is obviously stressful for debtors. Debtors should be made aware that measures can be taken against overeager creditors. A debtor should not assume that they can ignore their responsibilities because it is unlikely the creditor will initiate legal action. The debtor may try to communicate with the creditor(s) in hopes of reaching an agreement about repayment, and to avoid potentially costly legal battles. However, this is only to be done when the debtor wishes to acknowledge the debt.

Under the recently revised Limitation Act, SBC 2012 c. 13. a creditor cannot succeed in pursuing a debtor after two years from the last payment or acknowledgement of the debt. Communications with creditors that acknowledgethe debt will initiate a new two year time horizon in which a creditor is able to pursue the debtor. This should be carefully considered when a debtor is approaching the end of a two year timeline in which they will be relinquished of legal responsibility for the debt at issue. Since this change to the limitation period, several major creditors have been pursuing debtors through in house collections more aggressively, rather than sending the accounts to third party agencies. The limitation change may also be leading creditors to pursue debtors in court with greater frequency.

Also important to consider is if the matter arose before June 1, 2013, when the revised Limitation Act came into force. If the matter arose before this date, the time period in which a creditor may pursue a debtor is six years rather than two. It is important to determine which limitation period applies before advising a client. To avoid acknowledging a debt, it is important that the following phrase be included in the letter: “This communication is provided solely for the purpose of [state purpose of letter] and does not constitute an acknowledgement of the alleged debt described (above).”

If an acknowledgement of the debt occurs, both the debtor and the creditor must be realistic about the situation. Both parties must assess the costs and delay involved in any litigation. In such negotiations, the latter factors may work in favour of the debtor.

A debtor may wish to seek legal advice before discussing or disputing a debt with a creditor, but this is not always necessary. If the debtor believes they do not owe the debt they should consider legal advice. If the debtor believes they owe the money but disputes the amount claimed, they may also want to consider legal advice. However, if the debtor simply cannot meet the payment terms, it is recommended that they seek credit counselling. See Section IV. Dealing With Debt.

Where a creditor is pressuring a debtor for payment, a student may write a “without prejudice” letter to the creditor explaining your client’s position and/or offering a settlement. See Section III.F: Settlements, below for further information. When writing a Without Prejudice letter it is critical to include the following phrase: “This communication is provided solely for the purpose of [state purpose of letter] and does not constitute an acknowledgement of the alleged debt described above.”

A debtor cannot seek to avoid defending an action in court where that action takes place in another province on the grounds that the court lacks jurisdiction. An action under s 29 of the COEA to enforce an extra-provincial default judgment may proceed where the debtor was served but chose not to offer any defence to the original statement of claim. The creditor simply registers a judgment from another province in B.C., and it becomes a B.C. judgment. Furthermore, as a result of the decisions in Morguard Investments v De Savoye, [1990] 3 SCR 1077 and Beals v Saldanha, [2003] 3 SCR 416, 2003 SCC 72, American and other international default judgments can be easily enforced in B.C. A creditor seeking to register a judgment in B.C. should be aware that only judgments from a reciprocating state can be registered. To determine if a reciprocating agreement exists go to the schedule in the COEA. If there is no reciprocating agreement in place, a creditor can bring an action on the judgment or on the original cause of action.

A. Legal Advice for Debtors Under Secured Transactions

The information in this section is specific to the defendant’s point of view, but is most usefully read in conjunction with Section II: Creditors’ Remedies. If a student needs more information, that section may help to complete the picture.

Where the debtor is in default under a security agreement, s 56 of the PPSA provides that the secured party has against the debtor the rights and remedies provided in the security agreement (provided such do not derogate those rights given to the debtor by the PPSA) as well as those specifically provided by the Act.

Sections 58 and 59, contain rules for seizing and disposing of collateral. These sections provide that, unless the security agreement states otherwise, where the debtor defaults on their payment, the creditor may elect to take possession of the collateral pursuant to the contract, dispose of the collateral and then sue for any amount still owing. Section 67, provides for a more limited set of remedies where the collateral takes the form of consumer goods – known as the “seize or sue” rule. Formerly, under legislation repealed by the PPSA, all creditors could only seize or sue but not both. The principle of “seize or sue” still applies to “consumer goods” (see Section II.A.6.: Seizure and Section II.A.7: Disposal of Collateral); it no longer applies to commercial goods. The PPSA defines “consumer goods” as those goods that are used or acquired for use primarily for personal, family or household purposes. “Commercial goods” are those goods used for commercial purposes.

1. Notice

NOTE: The forms of notices under the PPSA depend on a number of variables, including the nature of the security and the terms of the security agreement. Clients seeking advice concerning the validity of notices should be referred to a lawyer.

Subject to the circumstances where notice is not required as per s 59 (17) (i.e. for perishable collateral, collateral requiring disproportionately high storage costs relative to its value, etc.), the requirements for notice are outlined in ss 59(6) and (10): the secured party or receiver, as the case may be, must provide at least 20 days’ notice of an intention to dispose of the collateral to parties including the debtor and any other creditor. The clinician should check to make sure that the debtor received notice in time and in the correct form. See Section II.A.8: Notice to Dispose of Collateral for a complete account of the notice requirements that must be met under the PPSA.

2. Limitation of the Right of Seizure

With respect to collateral which is a “consumer good,” where the debtor has paid at least two-thirds of the total amount secured, the creditor may not seize the good without first obtaining a court order.

3. Rights of a Debtor on Realization

The PPSA preserves the debtor’s (but not the secured party’s) rights and remedies under other statutes that are not inconsistent with the PPSA, as well as the specific rights and remedies provided in the security agreement, ss 17 and 56(2)(b).

4. Rights of Redemption and Reinstatement

Under s 62, a debtor has redemption rights. Any person entitled to notice of a pending disposition of collateral may “redeem” the collateral by tendering to the secured party fulfilment of the obligations secured by the collateral plus the reasonable expenses incurred by the secured party associated in seizing the collateral or otherwise preparing it for disposition. The aforementioned obligations may simply be the amount in arrears; however, it is more often the case that an acceleration clause applies, and that the obligations will be the total amount of the debt. Where the security agreement contains an acceleration clause, the debtor may apply to court for relief from the consequences of default or for an order staying enforcement of the security agreement’s acceleration provision.

Where the collateral is a “consumer good”, the calculation of the obligation secured and the obligation that must be tendered is varied. The debtor may “reinstate” the security agreement by paying only the monies actually in arrears – negating the operation of any acceleration clause. The debtor may waive this right but any such agreement must be in writing after default. Note that the number of times the debtor may reinstate the security agreement is limited depending on the period of time for repayment set out in the security agreement; however, the frequency of reinstatement may be varied by agreement between the parties.

5. Execution

See Section II.B.2: Execution.

B. Legal Advice for Debtors Who are Garnished

The details of how an order for garnishment is obtained are found in the creditor’s remedy portion of the chapter, but debtors should be reminded that hardship may be a defence to garnishment. Therefore, a pre or post-judgment garnishment order may be varied where it would be unfair to the judgment debtor; it is generally easier to have a pre-judgment order varied.

Under ss 3 or 4 of the COEA, a judge has the discretion to set aside a garnishing order once the debtor has made an application. A judge will consider: For pre-judgment orders only:

1. the strengths and weaknesses of the defendant’s defence to the claim.

For both pre and post-judgment orders:

1. whether the judgment leaves the debtor with an inordinately low cash flow;
2. whether there is a risk that the grant or continuance of the order will cause an injustice to the debtor;
3. whether there is a possibility of abuse of process by the creditor; and
4. whether the garnishment of certain payments, such as social assistance benefits, run counter to public policy

Furthermore, s 4(4) of the COEA describes the limits to which a debtor’s wages may be garnished. Thus, if a debtor has a low income or has savings they depend on for the necessities of life, they can have the amount that is being garnished (or proposed to be garnished) reduced, the terms of the order varied, or the garnishment ended. A person who is subject to a Notice of Attachment under the Family Maintenance Enforcement Program can also try to have the amount that is being ‘garnished’ reduced. Additionally, a garnishing order from a civil action has to be renewed monthly, while a garnishing orderfor maintenance does not.

If the debtor receives income from a statutory benefit that is exempt from garnishment (e.g social assistance), they should be advised as to how to protect their money after it is paid to them. The right of offset allows banks to seize deposited funds from an account at that institution to cover a loan or account in default. If funds which are exempt from garnishment are deposited into a regular account that is commingled with other funds, they will not be protected from seizure by the financial institution. Their income should be safe if it is paid by direct deposit into an account at an institution to which they do not owe any money. No other deposits should ever be made into this account. It is also helpful to speak to a branch manager so that they understand the purpose of the account. A debtor should be advised that they have a right to open a personal bank account at a chartered bank, even if they do not have a job or do not have money to put in the account right away. However, the applicant can be refused if the bank employee suspects fraud or experiences harassment from the applicant. For further information, see: http://www.fcac-acfc.gc.ca and navigate through the website by clicking on Consumers > Resources > Publications > Banking > Opening a personal banking account: understanding your rights.

NOTE: This right to open a personal account does not extend to credit unions. Credit unions are regulated under provincial legislation rather than the federal act and they have wider powers to deny applicants. For further information, visit http://www.fic.gov.bc.ca.

C. Harassment by Debt Collectors

The Business Practices and Consumer Protection Act, [BPCPA] provides for the licensing and regulation of debt collectors, which is carried out by Consumer Protection BC. The statute provides that jurisdiction is determined by the location of the debtor. Under the statute, Consumer Protection BC has wide powers of investigation.

1. Unreasonable Collection Practices

A collector must not communicate with a debtor, a member of the debtor’s family, a relative, a neighbour or the debtor’s employer in a manner or with a frequency as to constitute harassment. The following constitutes harassment:

• a) using threatening, profane, intimidating or coercive language;
• b) exerting undue, excessive or unreasonable pressure; and/or
• c) publishing or threatening to publish a debtor's failure to pay (BPCPA, s.114).

A collector cannot communicate with a debtor at the debtor’s place of employment unless one of the following conditions is met:

• a) the collector does not have the home address or telephone number for the debtor and the collector contacts the debtor solely for the purpose of requesting the debtor's home address or telephone number or both;
• b) the collector has attempted to contact the debtor at the debtor’s home address or telephone number, but the collector has not contacted the debtor in any of these attempts (the collector is limited to one verbal attempt at the debtor’s place of employment (s 116(2)), meaning one call even if the debtor doesn’t answer or hangs up); or
• c) the collector has been authorized by the debtor to communicate with the debtor at the debtor’s place of employment (s 116 (1)).

When the collector is contacting the debtor, they must indicate the name of the creditor with whom the debt was incurred, the amount of the debt, and the identity and authority of the collector to collect the debt from the debtor (s 116 (3)).

The collector must only contact a debtor through writing if the debtor provides a mailing address and notifies the collector in writing that they wish to be contacted only by writing. (s 116 (4)). If the debtor does not respond or make an effort to respond to the collector’s written correspondence, the collector can contact the debtor in other ways.

In collecting or attempting to collect payment of debt, a collector must not supply any false or misleading information; misrepresent the purpose of communication; misrepresent the identity of the collector or, if different, the creditor; or use, without lawful authority, a summons, notice, demand, or other document that suggest or implies a connection with any court inside Canada (s.123).

If a creditor does not obey the BPCPA, the debtor may report the creditor to Consumer Protection BC.

2. Limits on Right of Seizure

Under s 122, no collector, whether on their own behalf or on behalf of another, directly, indirectly, or through others, shall:

• a) unless there is a court order to the contrary, remove from the debtor’s private dwelling any personal property claimed under seizure, distress, or repossession, in the absence of the debtor, the debtor’s spouse, the debtor’s agent, or an adult resident in the debtor’s dwelling;
• b) seize, repossess or levy distress against any chattel not specifically charged or mortgaged, or to which legal claim may not be made under a statute, court judgment, or court order; or
• c) remove, seize, repossess, or levy distress against any chattel during a day or during the hours of a day when such removal, seizure, repossession or distress is prohibited by regulations under this Act.

3. Consequences of Contravention of the Business Practices and Consumer Protection Act

Where there is evidence of misconduct by the debt collector, the Director may suspend, cancel, or refuse to issue their license (s 146(1)). Such conduct includes (s 146(2)):

• a) contravening this Act or regulations;
• b) failing to meet the minimum requirements for a license;
• c) conduct by the debt collector that shows that they are unfit to have a license; or
• d) being convicted of an offence under Canadian law.

4. Legal Advice for a Harassed Debtor

If there may be a violation of the Business Practices and Consumer Protection Act, the debtor should do the following:

• a) find out the name of the collector and/or agency;
• b) record the exact words or practice followed by the debt collector or the agency; and
• c) detail the time and dates of the calls or visits.

With the above information the debtor should contact Consumer Protection BC for the name of the complaints manager for the collection agency the debtor is dealing with. This complaints manager will work with the debtor to resolve the complaint, including disciplinary action, if appropriate. Their website is http://www.consumerprotectionbc.ca and includes resources regarding consumer and debtor rights, as well as dispute resolution. It also includes a form for registering a complaint with Consumer Protection BC.

Finally, if the debtor suffered damages or inconvenience as a result of the agency’s collection practices, a Small Claims action may be commenced (s 171, 172).

D. Credit Reporting Agencies

Businesses offering goods or services on credit often rely on credit bureau reports for financial and prior debt information on their customers.

The Business Practices and Consumer Protection Act regulates the activities of the credit bureaus in order to minimize unfair treatment of the party seeking credit. Federal legislation, such as the Personal Information Protection and Electronic Documents Act [PIPEDA] and the Privacy Act, also outline the requirements for organizations in their use, collection, and disclosure of personal information in their business practices. Credit information that these bureaus can disclose is the most common type of personal information, and includes one’s:

• a) name, date of birth and address;
• b) current and former marital status;
• c) current and former place of work;
• d) payment habits; and
• e) debts owing.

A credit reporting agency cannot give out an individual’s personal credit report without that individual’s consent. When one seeks credit, they will be asked to consent to the lender obtaining a credit report or a credit check. (After consent is given, the lender can obtain a “soft check” periodically meaning they can view the report relating to their loans).

Certain information cannot be included in a credit report, e.g., criminal charges (unless the individual was convicted), convictions more than six years old, and information about race, religion or political affiliation.

Credit reporting agencies’ records are not always accurate and up to date. The quality and accuracy of the credit information depends on the credit information provided by the credit granting companies who sign up with the credit reporting agencies. If an individual finds incorrect information on their file, they can report the error to the agency that provided the information to have it corrected. If an individual has proof that their credit report contains an error and they are unable to resolve it with the creditor directly, the individual should contact the credit reporting agencies who are reporting the incorrect information. The agencies will assist them with finding a resolution. Any individual who is a victim of identity theft should immediately file a police report. The BPCPA allows individuals to provide a 100 word explanation to the reporting agency, which is to be kept and reported with their file (s.111); this may be a useful provision if a business has reported a disputed claim regarding the client, or if client is a victim of identity theft. Any victim of identity theft is recommended to post a comment on their credit report. This notifies creditors of the fact that the identity theft has taken place, and prevents additional credit being granted without a thorough review by the creditor. It is an offence (punishable by a fine of up to $10,000 or imprisonment for up to 12 months) to knowingly supply false or misleading information to a reporting agency (s 112).

Consumers may obtain their own credit report for free at least once a year by telephoning the credit bureaus directly or completing the form available on their websites Alternatively, a consumer can obtain an instant credit report by using a credit card to pay a one time fee.

There are currently two main credit reporting agencies in Canada, listed below.

Equifax

Toll-free: 1-800-465-7166

Website: http://www.equifax.ca

TransUnion

Toll-free: 1-800-663-9980 (English); 1-877-713-3393 (French)

Website: http://www.transunion.ca

NOTE: Individuals should check their credit history regularly. Industry specialists suggest once per year. Credit reporting agencies will send a person a copy of their credit history by regular mail for free. As each agency operates in a different matter, individuals are encouraged to request their credit history from both agencies, as they will likely be different.