Difference between revisions of "Collecting on a Debt"

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{{Dial-A-Law TOC|expanded = credit}}
{{Dial-A-Law TOC|expanded = credit}}
==What is a debt?==
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 the situation.  
A debt is something that someone owes someone else. For example, if 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.
==Understand your legal options==


==Is it worth trying to collect your debt?==
===What is a debt===
No one enjoys collecting debts, but sometimes you must 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.
A '''debt''' is something, typically money, that is owed or due. It may arise from a promise to repay an amount of money (for example, a loan), or an agreement to pay for goods or services. This information deals with these kinds of debts. It doesn’t deal with debts relating to rent, mortgages, or family law situations.


==If you want to collect, what are your options?==
If someone owes you money, that person is called a '''debtor'''. You are called the '''creditor'''.
You can:
 
*hire a collection agency.
===You have options to collect on a debt===  
*try to collect yourself.
To collect on a debt, you can:
*try to collect yourself,
*hire a collection agency, or
*hire a lawyer to collect the debt for you.
*hire a lawyer to collect the debt for you.


==You cannot harass the debtor==
Collection agencies typically charge between 25% and 50% of the amount of the debt they recover.
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 [[Harassment by Debt Collectors (Script 252)|252]] on “Harassment by Debt Collectors” for more on this.
 
Lawyers typically charge between $200 and $400 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, you should get a written contract outlining what you will have to pay, and when.
 
Neither collection agencies nor lawyers can guarantee they will recover anything from the debtor.
 
===You can’t take the debtor’s property===  
Whatever approach you decide on, you can’t take the debtor’s property except through taking legal action (this is explained below). Nor can you harass the debtor; see our information on [[Harassment by Debt Collectors (Script 252)|harassment by debt collectors (no. 252)]] for more on this topic.


==How much will a collection agency or lawyer cost?==
===There is a time limit to sue to collect a debt===
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 for a contingency fee, you should get a written contract outlining what you will have to pay, and when.
The [http://canlii.ca/t/8qx3 law in BC] creates a basic '''limitation period''' of two years for starting a legal action. A lawsuit cannot be brought more than two years after the “claim is discovered”. In the case of a debt, if a debtor hasn’t made a payment — or acknowledged they owe a debt — in more than two years, the creditor may be barred from bringing legal action to collect.  


Neither collection agencies nor lawyers can guarantee that they will recover anything.
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 legal action as soon as possible. If you are not sure about the time limit, [[Low Cost and Free Legal Services (Script 430)|get legal advice]] before you sue. If you start a lawsuit after the deadline, you may have to pay the debtor’s legal costs.


You can consult a lawyer through the Canadian Bar Association’s [http://www.cbabc.org/For-the-Public/Lawyer-Referral-Service Lawyer Referral Service]. A consultation for up to 30 minutes is $25 plus tax. That can help you decide what to do.
==Deal with the problem==


==Two-year time limit to sue==
===Step 1. Decide on a course of action===
A two-year limit applies to most debts that become due after June 1, 2013. If you don’t 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.
No one enjoys collecting debts. 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.


==Gather the facts and the evidence==
===Step 2. Collect information on the debt===
You should gather information and documents relating to the debt. These include:
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.
*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.
*how and when the debt arose
*the ability of the debtor to pay.
*the ability of the debtor to pay
*the reason why the debt hasn’t been paid, if you know.
*the reason why the debt hasn’t been paid, if you know


The information and documents will help you collect the debt.
The information and documents will help you collect the debt.


==Start by contacting the debtor yourself==
===Step 3. Contact the debtor===  
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.
Reach out to the debtor by phoning, emailing or texting them. Remind the debtor of the debt and ask what they can do to pay the debt. 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 demanding payment of the debt. You may want to offer practical payment options that are acceptable to you, including payment by credit card or post-dated cheques.
 
The letter can’t threaten to take improper action to collect the debt. It is perfectly appropriate to say you are considering legal action. You might end your letter saying something like:
:“I intend to take legal action to collect the debt, plus interest and costs of the legal proceedings, if you don’t make satisfactory payment arrangements within [a certain window of time].”
 
A common window of time to give the debtor to make payment arrangements is seven to 30 days.
 
===Step 5. Consider legal action===
If the debtor does not pay, you may want to bring a legal action.  


==Sending a demand letter may help==
You can sue in British Columbia if the debt arose in BC, or if the debtor lives or carries on business in BC.  
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?==
Just starting a lawsuit will sometimes make the debtor pay. As well, after starting the action, you may be able to collect money from the debtor’s employer and others who owe money to the debtor. See our information on [[Garnishment (Script 251)|garnishment (no. 251)]].
If the debtor does not pay, you may want to sue. You can do that if the debt arose in BC, or if the debtor lives, or carries on business, in BC. Depending on the amount you are seeking (explained below) you sue in '''small claims court''' or '''BC supreme court'''. Courthouses for small claims court and supreme court are located throughout BC. If you are seeking up to $5,000, you should file a claim with the [https://civilresolutionbc.ca/ Civil Resolution Tribunal].


Just starting to sue will sometimes make the debtor 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 [[Garnishment (Script 251)|251]] has more on this.
The amount you are seeking affects the choice of court you would sue in.


==When to use small claims court and the Civil Resolution Tribunal==
If you are seeking '''up to $5,000''', you can file a claim with the [https://civilresolutionbc.ca/ Civil Resolution Tribunal]. The tribunal is an online system designed for people to represent themselves.
For amounts between $5,001 and $35,000, use [http://www.provincialcourt.bc.ca/types-of-cases/small-claims-matters small claims court]. 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 $35,000, you can sue for the maximum $35,000 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 [http://www.cbabc.org/For-the-Public/Dial-A-Law/Scripts/Small-Claims-Court Dial-A-Law scripts on small claims court].
For amounts '''between $5,000 and $35,000''', you would sue in [http://www.provincialcourt.bc.ca/types-of-cases/small-claims-matters Small Claims Court]. Many people represent themselves in this court. It’s less expensive and less risky than going to Supreme Court. If the debtor owes you more than $35,000, you can sue in Small Claims Court for up to $35,000 and forget the rest. See our information on [[Suing Someone in Small Claims Court (Script 166)|Small Claims Court]] (no. 166 to 168).


For amounts up to $5,000, use the [https://civilresolutionbc.ca/ Civil Resolution Tribunal]. It uses an online claim system. Its website has more information. You don’t have to use a lawyer with the tribunal.
For amounts '''over $35,000''', you would sue in [https://www.supremecourtbc.ca/ BC Supreme Court].


==When to use supreme court==
==Common questions==
For amounts over $35,000, use [http://www.courts.gov.bc.ca/supreme_court/ BC Supreme Court]. This is more complicated and expensive than small claims court, and you should hire a lawyer, or speak to a lawyer before starting the lawsuit. For more information, check the [http://www.courts.gov.bc.ca/supreme_court/self-represented_litigants Supreme Court website for self-represented litigants].


==What happens after you get a court judgment?==
===What happens if I 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:
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.
*You can 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.
*You can seize (that is, take) the debtor’s assets with a court order using a bailiff.
*register the judgment against land the debtor owns.
*You can register the judgment against land the debtor owns.
*garnish the debtor’s wages or money owed to the debtor.
*You can garnish the debtor’s wages or other money owed to the debtor.


Script [[Getting Your Judgment Paid (Script 169)|169]] has more on getting your judgment paid. So does the provincial government website called ''[http://www2.gov.bc.ca/gov/content/justice/courthouse-services/small-claims/how-to-guides/getting-results Getting Results]''.
See our information on [[Getting Your Judgment Paid (Script 169)|getting your judgment paid (no. 169)]].




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[updated October 2017]
[updated October 2017]


'''The above was last reviewed for accuracy by Robert Rogers and Barry Promislow, and edited by John Blois.'''
'''The above was last reviewed for legal accuracy by [https://www.peopleslawschool.ca/lawyer/robert-rogers Robert Rogers], Hamilton Duncan, and [http://www.robertslaw.ca/ Adam Roberts], Barrister & Solicitor.'''


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Revision as of 06:50, 17 February 2019

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 the situation.

Understand your legal options

What is a debt

A debt is something, typically money, that is owed or due. It may arise from a promise to repay an amount of money (for example, a loan), or an agreement to pay for goods or services. This information deals with these kinds of debts. It doesn’t deal with debts relating to rent, mortgages, or family law situations.

If someone owes you money, that person is called a debtor. You are called the creditor.

You have options to collect on a debt

To collect on a debt, you can:

  • try to collect yourself,
  • hire a collection agency, or
  • 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 typically charge between $200 and $400 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, you should get a written contract outlining what you will have to pay, and when.

Neither collection agencies nor lawyers can guarantee they will recover anything from the debtor.

You can’t take the debtor’s property

Whatever approach you decide on, you can’t take the debtor’s property — except through taking legal action (this is explained below). Nor can you harass the debtor; see our information on harassment by debt collectors (no. 252) for more on this topic.

There is a time limit to sue to collect a debt

The law in BC creates a basic limitation period of two years for starting a legal action. A lawsuit cannot be brought more than two years after the “claim is discovered”. In the case of a debt, if a debtor hasn’t made a payment — or acknowledged they owe a debt — in more than two years, the creditor may be barred from bringing legal action to collect.

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 legal action as soon as possible. If you are not sure about the time limit, get legal advice before you sue. If you start a lawsuit after the deadline, you may have to pay the debtor’s legal costs.

Deal with the problem

Step 1. Decide on a course of action

No one enjoys collecting debts. 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.

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 why 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 phoning, emailing or texting them. Remind the debtor of the debt and ask what they can do to pay the debt. 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 demanding payment of the debt. You may want to offer practical payment options that are acceptable to you, including payment by credit card or post-dated cheques.

The letter can’t threaten to take improper action to collect the debt. It is perfectly appropriate to say you are considering legal action. You might end your letter saying something like:

“I intend to take legal action to collect the debt, plus interest and costs of the legal proceedings, if you don’t make satisfactory payment arrangements within [a certain window of time].”

A common window of time to give the debtor to make payment arrangements is seven to 30 days.

Step 5. Consider legal action

If the debtor does not 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 money from the debtor’s employer and others who owe money to the debtor. See our information on garnishment (no. 251).

The amount you are seeking affects the choice of court you would sue in.

If you are seeking up to $5,000, you can file a claim with the Civil Resolution Tribunal. The tribunal is an online system designed for people to represent themselves.

For amounts between $5,000 and $35,000, you would sue in Small Claims Court. Many people represent themselves in this court. It’s less expensive and less risky than going to Supreme Court. If the debtor owes you more than $35,000, you can sue in Small Claims Court for up to $35,000 and forget the rest. See our information on Small Claims Court (no. 166 to 168).

For amounts over $35,000, you would sue in BC Supreme Court.

Common questions

What happens if I 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:

  • You can question the debtor under oath about their income, assets and ability to pay.
  • You can seize (that is, take) the debtor’s assets with a court order using a bailiff.
  • You can register the judgment against land the debtor owns.
  • You can garnish the debtor’s wages or other money owed to the debtor.

See our information on getting your judgment paid (no. 169).


[updated October 2017]

The above was last reviewed for legal accuracy by Robert Rogers, Hamilton Duncan, and Adam Roberts, Barrister & Solicitor.



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