Difference between revisions of "Collecting on a Debt"

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{{Dial-A-Law Blurb}}
{{REVIEWEDPLS | reviewer = [https://www.peopleslawschool.ca/lawyer/robert-rogers Robert Rogers], Hamilton Duncan, and [http://www.robertslaw.ca/ Adam Roberts], Barrister & Solicitor|date= January 2020}} {{Dial-A-Law TOC|expanded = money}}
No one enjoys it when they’re owed money and don’t get paid. Learn the options available to you when collecting on a debt, and the steps to deal with problems.
==What you should know==


{{Dial-A-Law TOC|expanded = credit}}
===You have options to collect on a debt===
==What is a debt?==
To collect on a debt, you can:
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?==
* try to collect yourself
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.
* hire a collection agency
* hire a lawyer to collect the debt for you


==If you want to proceed, what are your options?==
Collection agencies typically charge between 25% and 50% of the amount of the debt they recover.


You can:
Lawyers generally charge a flat hourly rate. But they may also work for a “contingency fee.” This means they get a percentage of whatever they recover. So if they don’t collect anything, you don’t pay. But you may still be on the hook for any expenses.
*hire a collection agency
*pursue the collection yourself
*hire a lawyer to help you


==You cannot harass the debtor==
===You can’t take the debtor’s property===
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 [[Harassment by Debt Collectors (Script 252)|252]] on “Harassment by Debt Collectors” to learn more about this.
Whatever approach you decide on, you can’t take the debtor’s property — except through legal action. If you sue the debtor and get a judgment in your favour, you may be able to take their property as repayment. We explain this elsewhere. [https://www.peopleslawschool.ca/creditor-repossess-property/ See our information on repossessing property].


==How much will a collection agency or lawyer cost?==
Nor can you harass the debtor. For example, you can’t use threatening, profane, or intimidating language. We cover this in some detail in our information on debt collectors. [https://www.peopleslawschool.ca/dealing-debt-collectors/ Here's a link to that information].
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==
===There’s a time limit to sue 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.
In BC, there’s a basic '''limitation period''' of two years for starting a legal action. You can’t start a lawsuit more than two years after the claim is “discovered.” If the debtor hasn’t made a payment or acknowledged the debt in more than two years, you may be too late to collect.


==Gather the facts and the evidence==
If the time limit is approaching on a debt owed to you, consider starting legal action right away. That way, you’ll keep your right to collect. If you aren’t sure about the time limit, consider getting legal advice.
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.
==Work out the problem==


==Start by contacting the debtor yourself==
If you run into problems collecting on a debt, there are steps you can take.
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==
===Step 1. Decide on a course of action===
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?==
Collecting debts can be a pain. As a first step, ask yourself if it’s worth the effort. For example, maybe the debt is very small. Or the debtor is unlikely to be able to repay anything. In either case, it may cost you more time and money to collect than the debt is worth.
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 [[Garnishment (Script 251)|251]] for more information about garnishment.
===Step 2. Collect information on the debt===


==When can you use Small Claims Court?==
You should gather information and documents relating to the debt. These include:
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.
* 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 the debt hasn’t been paid, if you know


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 [http://www.ag.gov.bc.ca/courts/small_claims/info/guides.htm www.ag.gov.bc.ca/courts/small_claims/info/guides.htm].
The information and documents will help you collect the debt.


==When do you have to use Supreme Court?==
===Step 3. Contact the debtor===
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 [http://www.courts.gov.bc.ca/supreme_court/self-represented_litigants www.courts.gov.bc.ca/supreme_court/self-represented_litigants].
Reach out to the debtor by phone, email or text. Remind them of the debt and ask what they can do to pay it. If the debtor agrees to pay based on a payment schedule, put the agreement in writing. Get them to date and sign it.


==What happens after you get a court judgment?==
===Step 4. Send a demand letter===
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 '''demand letter''' is a letter insisting on payment. In it, you can offer payment options that are acceptable to you. For example, payment by credit card or e-transfer.
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.


Your letter can’t threaten to take improper action to collect. But you can say you’re considering legal action. You can also give the debtor a time window to make payment arrangements (for example, 30 days).


[updated September 2013]
A template is always a good place to start. [https://www.peopleslawschool.ca/letter-loan-demand/ We have a loan demand letter template].


===Step 5. Consider legal action===


----
If the debtor doesn’t pay, you may want to bring a legal action. You can sue in British Columbia if the debt arose in BC, or if the debtor lives or carries on business in BC.
----


Just starting a lawsuit will sometimes make the debtor pay. As well, after starting the action, you may be able to collect from the debtor’s employer and others who owe money to the debtor. We explain the concept of “garnishment” elsewhere. [https://www.peopleslawschool.ca/creditor-garnish-wages-or-bank/ See our information on garnishment].


If the amount you’re trying to collect is less than $5,000, you can bring your claim to the Civil Resolution Tribunal. This is an online system designed for people to bring claims on their own. If your claim is between $5,000 and $35,000, you’d sue in Small Claims Court.
For amounts over $35,000 you'd sue in BC Supreme Court. You can also sue in Small Claims Court for up to $35,000 and forget the rest.
==Who can help==
===Legal advice===
There are options for free legal advice.
:'''Lawyer Referral Service'''
:Helps you connect with a lawyer for a complimentary 15-minute consult to see if you want to hire them.
:Call 1-800-663-1919
:[https://www.accessprobono.ca/our-programs/lawyer-referral-service Visit website]
:'''Access Pro Bono's Free Legal Advice'''
:Volunteer lawyers provide 30 minutes of free legal advice to people with low or modest income.
:Call 1-877-762-6664
:[https://www.accessprobono.ca/get-legal-help Visit website]
:'''People’s Law School'''
:See more options for free or low-cost legal help.
:[https://www.peopleslawschool.ca/options-legal-help/ Visit website]
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Latest revision as of 00:57, 7 November 2023

This information applies to British Columbia, Canada. Last reviewed for legal accuracy by Robert Rogers, Hamilton Duncan, and Adam Roberts, Barrister & Solicitor in January 2020.
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No one enjoys it when they’re owed money and don’t get paid. Learn the options available to you when collecting on a debt, and the steps to deal with problems.

What you should know

You have options to collect on a debt

To collect on a debt, you can:

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

Collection agencies typically charge between 25% and 50% of the amount of the debt they recover.

Lawyers generally charge a flat hourly rate. But they may also work for a “contingency fee.” This means they get a percentage of whatever they recover. So if they don’t collect anything, you don’t pay. But you may still be on the hook for any expenses.

You can’t take the debtor’s property

Whatever approach you decide on, you can’t take the debtor’s property — except through legal action. If you sue the debtor and get a judgment in your favour, you may be able to take their property as repayment. We explain this elsewhere. See our information on repossessing property.

Nor can you harass the debtor. For example, you can’t use threatening, profane, or intimidating language. We cover this in some detail in our information on debt collectors. Here's a link to that information.

There’s a time limit to sue to collect a debt

In BC, there’s a basic limitation period of two years for starting a legal action. You can’t start a lawsuit more than two years after the claim is “discovered.” If the debtor hasn’t made a payment or acknowledged the debt in more than two years, you may be too late to collect.

If the time limit is approaching on a debt owed to you, consider starting legal action right away. That way, you’ll keep your right to collect. If you aren’t sure about the time limit, consider getting legal advice.

Work out the problem

If you run into problems collecting on a debt, there are steps you can take.

Step 1. Decide on a course of action

Collecting debts can be a pain. As a first step, ask yourself if it’s worth the effort. For example, maybe the debt is very small. Or the debtor is unlikely to be able to repay anything. In either case, it may cost you more time and money to collect than the debt is worth.

Step 2. Collect information on the debt

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 the debt hasn’t been paid, if you know

The information and documents will help you collect the debt.

Step 3. Contact the debtor

Reach out to the debtor by phone, email or text. Remind them of the debt and ask what they can do to pay it. If the debtor agrees to pay based on a payment schedule, put the agreement in writing. Get them to date and sign it.

Step 4. Send a demand letter

A demand letter is a letter insisting on payment. In it, you can offer payment options that are acceptable to you. For example, payment by credit card or e-transfer.

Your letter can’t threaten to take improper action to collect. But you can say you’re considering legal action. You can also give the debtor a time window to make payment arrangements (for example, 30 days).

A template is always a good place to start. We have a loan demand letter template.

Step 5. Consider legal action

If the debtor doesn’t pay, you may want to bring a legal action. You can sue in British Columbia if the debt arose in BC, or if the debtor lives or carries on business in BC.

Just starting a lawsuit will sometimes make the debtor pay. As well, after starting the action, you may be able to collect from the debtor’s employer and others who owe money to the debtor. We explain the concept of “garnishment” elsewhere. See our information on garnishment.

If the amount you’re trying to collect is less than $5,000, you can bring your claim to the Civil Resolution Tribunal. This is an online system designed for people to bring claims on their own. If your claim is between $5,000 and $35,000, you’d sue in Small Claims Court.

For amounts over $35,000 you'd sue in BC Supreme Court. You can also sue in Small Claims Court for up to $35,000 and forget the rest.

Who can help

Legal advice

There are options for free legal advice.

Lawyer Referral Service
Helps you connect with a lawyer for a complimentary 15-minute consult to see if you want to hire them.
Call 1-800-663-1919
Visit website
Access Pro Bono's Free Legal Advice
Volunteer lawyers provide 30 minutes of free legal advice to people with low or modest income.
Call 1-877-762-6664
Visit website
People’s Law School
See more options for free or low-cost legal help.
Visit website
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