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Creditors' Remedies against Debtors (10:III) (view source)
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{{LSLAP Manual TOC|expanded = creditors}} | {{LSLAP Manual TOC|expanded = creditors}} | ||
Prior to taking action against a debtor, the creditor must provide a reasonable time for payment on a demand loan or term loan. That time begins to run from the date of the demand for payment and not the date of the loan. What constitutes a reasonable demand period depends upon the facts of each case | Prior to taking action against a debtor, the creditor must provide a reasonable time for payment on a demand loan or term loan. That time begins to run from the date of the demand for payment and not the date of the loan. What constitutes a reasonable demand period depends upon the facts of each case. For a list of factors to be considered see ''Mister Broadloom Corporation (1968) Ltd v Bank of Montreal'' (1979), 25 OR (2d) 198 (Ont HCJ). As a result of the recent passage of a revised Limitation Act in British Columbia the period for commencement of proceedings for the collection of a debt in B.C. is 2 years from the “date of discovery” of the claim. The date of discovery is defined as the day on which the claimant knew or ought reasonably to have known all of the following: | ||
*a) That injury, loss or damage had occurred; | *a) That injury, loss or damage had occurred; | ||
*b) That the injury, loss or damage was caused by or contributed to by an act or omission; | *b) That the injury, loss or damage was caused by or contributed to by an act or omission; | ||
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For agreements that are subject to the ''PPSA'', Part 5 of the ''PPSA'' outlines the creditor’s remedies (ss 56 - Rights and remedies, 57 - Collection of payments under intangibles or chattel paper, 58 – Right of seizure or repossession, and 67 - Rights and remedies: consumer goods). For agreements that involve fixtures, crops or accessions, ss 36 – 38 apply. In addition, Part 6 contains some sections (i.e. ss 68(2) - Good faith and commercially reasonable, and 72 - Notice) that are of procedural importance. | For agreements that are subject to the ''PPSA'', Part 5 of the ''PPSA'' outlines the creditor’s remedies (ss 56 - Rights and remedies, 57 - Collection of payments under intangibles or chattel paper, 58 – Right of seizure or repossession, and 67 - Rights and remedies: consumer goods). For agreements that involve fixtures, crops or accessions, ss 36 – 38 apply. In addition, Part 6 contains some sections (i.e. ss 68(2) - Good faith and commercially reasonable, and 72 - Notice) that are of procedural importance. | ||
'''NOTE:''' | '''NOTE:''' ''PPSA'' issues, particularly those involving priority disputes or matters relating to the transitional provisions, are complex and may have to be referred to a lawyer. | ||
=== 3. What Does the PPSA Govern? === | === 3. What Does the PPSA Govern? === | ||
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*the secured party discovers after seizure that an accession that was collateral has been removed and not replaced by other goods of equivalent value and free from prior security interests, a claim may be advanced against the debtor for the value of the accession (s 67(8)). | *the secured party discovers after seizure that an accession that was collateral has been removed and not replaced by other goods of equivalent value and free from prior security interests, a claim may be advanced against the debtor for the value of the accession (s 67(8)). | ||
'''NOTE:''' The “seize or sue” rule does not apply to “true leases” but will apply to “security leases” or “conditional sales agreements”. BC courts have been developing tests to distinguish between true leases and security leases. Disputes often arise over car leases. | '''NOTE:''' The “seize or sue” rule does not apply to “true leases” but will apply to “security leases” or “conditional sales agreements”. BC courts have been developing tests to distinguish between true leases and security leases. Disputes often arise over car leases. Creditors and debtors should consult with a lawyer who is familiar with this area of law when trying to figure out whether their contract is a true lease or a security lease. If the lease is a true lease the creditor has the option to seize and sue; see ''Daimler Chrysler Services Canada Inc v Cameron'', 2007 BCCA 144. | ||
==== c) Consequences of Electing to Proceed Against Collateral ==== | ==== c) Consequences of Electing to Proceed Against Collateral ==== | ||
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Besides the debtor, another creditor may contest the claim (s 15). Grounds for filing include an allegation that there is no debt due in good faith from the debtor to the claimant, or an allegation that the claim is not one of debt as required by s 6 of the ''Creditor Assistance Act''. A claimant whose claim is contested must make an application to the Supreme Court of British Columbia within eight days of being notified; otherwise, the claim will be deemed to have been abandoned. | Besides the debtor, another creditor may contest the claim (s 15). Grounds for filing include an allegation that there is no debt due in good faith from the debtor to the claimant, or an allegation that the claim is not one of debt as required by s 6 of the ''Creditor Assistance Act''. A claimant whose claim is contested must make an application to the Supreme Court of British Columbia within eight days of being notified; otherwise, the claim will be deemed to have been abandoned. | ||
Under s 12, if the amount levied does not satisfy all of the writs of execution and certificates of claim, the sheriff is authorized to make a further seizure of the execution debtor’s personal property to satisfy all writs and certificates of claim. In addition, the certificate, if issued, remains in force for three years and may be renewed similarly to a writ of execution. | |||
=== 2. Execution === | === 2. Execution === | ||
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#$10,000 for tools and other personal property that the debtor uses in their occupation. | #$10,000 for tools and other personal property that the debtor uses in their occupation. | ||
In addition, s 71.1(1) of the ''COEA'' exempts the principal residence of the debtor; $12,000 is the prescribed amount of equity exemption if the debtor's principal residence is located within the boundaries of the Capital Regional District or the Greater Vancouver Regional District. If the debtor’s principle residence is located outside of these boundaries, $9,000 is the prescribed amount of equity exemption. These values are calculated using the net equity. | |||
Section 71.3 of the COEA specifies that property in registered plans may be exempt from seizure as well (including Deferred Profit Sharing Plans, Registered Retirement Income Funds and/or Registered Retirement Savings Plans). In order to qualify for an exemption,t he plan must be registered similar to the Registered Retirement Savings Plan However, there are some employee DPSPs that are not registered and exempt from seizure. Another exception to this rule is if property was contributed to the plan after or within 12 months before the date on which the debt became due. | |||
A “maintenance debtor” has the same meaning as a “debtor” in s 1(1) of the ''Family Maintenance Enforcement Act''. | |||
'''NOTE:''' Refer to BC Reg 28/98 (Court Order Enforcement Exemption Regulations) for further details regarding exemptions under the ''COEA''. Where there are competing priority interests between judgment creditors and secured parties, each party should seek the assistance of counsel. | '''NOTE:''' Refer to BC Reg 28/98 (Court Order Enforcement Exemption Regulations) for further details regarding exemptions under the ''COEA''. Where there are competing priority interests between judgment creditors and secured parties, each party should seek the assistance of counsel. | ||
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In addition, s 54 of the ''Insurance Act'', RSBC 1996, c 226 allows for the exemption of certain insurance policies. Section 54(1) states that if insurance money has already been payable then it is exempt; essentially creditors cannot attach once money has been transferred. Section 54(2) states that insurance money and the rights and interests of the insured in a life insurance contract are exempt from execution or seizure, as long as there is a designation in favour of a preferred beneficiary (immediate family as defined by the act) of the person whose life is insured. | In addition, s 54 of the ''Insurance Act'', RSBC 1996, c 226 allows for the exemption of certain insurance policies. Section 54(1) states that if insurance money has already been payable then it is exempt; essentially creditors cannot attach once money has been transferred. Section 54(2) states that insurance money and the rights and interests of the insured in a life insurance contract are exempt from execution or seizure, as long as there is a designation in favour of a preferred beneficiary (immediate family as defined by the act) of the person whose life is insured. | ||
'''The ''Bankruptcy and Insolvency Act'', 1985, s 67(1)(b.3) now shields all RRSP contributions from seizure in a bankruptcy, except those made in the 12 months prior to bankruptcy.''' | '''The ''Bankruptcy and Insolvency Act'', 1985, s 67(1)(b.3) now shields all RRSP contributions from seizure in a bankruptcy, except those made in the 12 months prior to bankruptcy.''' | ||
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==== b) Execution Procedure: Land ==== | ==== b) Execution Procedure: Land ==== | ||
'''NOTE:''' | '''NOTE:''' Issues relating to land should be referred to a lawyer. | ||
If the judgment creditor registers a judgment in any Land Title Office, a lien is created against the interest in the real property of the judgment debtor that is registered in the land registration district in which the judgment is registered (s 82). Once a lien is formed, the judgment creditor may seek a court order to have the sheriff sell the land (ss 92 and 96), unless the land is held in joint ownership and the debt is in one party’s name only. In that case, an application must be brought for partition and sale of the property. The execution procedure, however, is slow and potentially expensive. '''The judgment creditor must renew the judgment after two years or it is extinguished''', unless it is a non-expiring judgment (i.e. a judgment registered under the ''Family Maintenance Enforcement Act''). | If the judgment creditor registers a judgment in any Land Title Office, a lien is created against the interest in the real property of the judgment debtor that is registered in the land registration district in which the judgment is registered (s 82). Once a lien is formed, the judgment creditor may seek a court order to have the sheriff sell the land (ss 92 and 96), unless the land is held in joint ownership and the debt is in one party’s name only. In that case, an application must be brought for partition and sale of the property. The execution procedure, however, is slow and potentially expensive. '''The judgment creditor must renew the judgment after two years or it is extinguished''', unless it is a non-expiring judgment (i.e. a judgment registered under the ''Family Maintenance Enforcement Act''). | ||
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Garnishment is a judicial proceeding in which a creditor asks the court to order a third party who is indebted to the debtor to turn over to the creditor any of the debtor’s property. The creditor is the garnishor. The third party is the garnishee. The ''COEA'' provides that a garnishing order may be obtained before or after judgment. | Garnishment is a judicial proceeding in which a creditor asks the court to order a third party who is indebted to the debtor to turn over to the creditor any of the debtor’s property. The creditor is the garnishor. The third party is the garnishee. The ''COEA'' provides that a garnishing order may be obtained before or after judgment. | ||
A pre-judgment garnishing order is paid into court pending the outcome of the proceedings, and may be used in circumstances where the debtors ability to pay may be compromised before judgment. A pre-judgment garnishing order is not available against wages. The creditor’s action against the debtor must be for a liquidated (i.e. explicitly specified) or ascertained sum. E.g. damages for a breach of contract must be quantified as a term of that contract (see ''Gibbons v Specialty Cars'' (27 January 1989), F.5885590 (BC County Ct.)). A definition of liquidated sum is found in ''Hydro Fuels v Wilder'', [1968] 1 OR 169 at 276 (HCJ). The accompanying affidavit must disclose the nature of the cause of action and the specified amount claimed. Note that recourse to a pre-judgment garnishing order is extraordinary and therefore the provisions of the ''COEA'' must be strictly complied with or it may be overturned. | A pre-judgment garnishing order is paid into court pending the outcome of the proceedings, and may be used in circumstances where the debtors ability to pay may be compromised before judgment. A pre-judgment garnishing order is not available against wages. The creditor’s action against the debtor must be for a liquidated (i.e. explicitly specified) or ascertained sum. E.g. damages for a breach of contract must be quantified as a term of that contract (see ''Gibbons v Specialty Cars'' (27 January 1989), F.5885590 (BC County Ct.)). A definition of liquidated sum is found in ''Hydro Fuels v Wilder'', [1968] 1 OR 169 at 276 (HCJ). The accompanying affidavit must disclose the nature of the cause of action and the specified amount claimed. Note that recourse to a pre-judgment garnishing order is extraordinary and therefore the provisions of the ''COEA'' must be strictly complied with or it may be overturned. The creditor will generally swear an affidavit in support of a pre-judgment garnishing order by himself or herself. | ||
A creditor who begins an action for a liquidated sum may seek to garnish a debt owed to the debtor to have the money paid into court to “ensure” payment if the creditor is successful in court. However, remember other judgment creditors may also be trying to ensure payment. | A creditor who begins an action for a liquidated sum may seek to garnish a debt owed to the debtor to have the money paid into court to “ensure” payment if the creditor is successful in court. However, remember other judgment creditors may also be trying to ensure payment. | ||
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If the order has already been made, the creditor should examine the possibility of having the garnishment released and an order for payment by instalments substituted under s 5, or in the case of garnishment of wages, having the exemption increased under s 4. '''The creditor should be advised that hardship may be used as a defence.''' | If the order has already been made, the creditor should examine the possibility of having the garnishment released and an order for payment by instalments substituted under s 5, or in the case of garnishment of wages, having the exemption increased under s 4. '''The creditor should be advised that hardship may be used as a defence.''' | ||
If | If you are a garnishee who wishes to dispute indebtedness to the defendant or judgment debtor, they should file a dispute notice as soon as possible with the court. If they do not dispute it, a second order, called an order absolute may be issued (see [[Relevant Forms for Creditors%27 Remedies (10:App A) | Appendix A: List of Relevant Documents]]: Affidavit in Support of Garnishing Order After Judgment). This order operates as a judgment and execution may be taken against him or her. '''Inactivity could render a garnishee liable even if they never owed the money to the defendant/judgment debtor.''' | ||
==== b) Which Debts Can be Garnished? ==== | ==== b) Which Debts Can be Garnished? ==== | ||
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The garnishing order may be set aside if the procedural requirements are not strictly complied with because it is considered an extraordinary remedy. For example, a pre-judgment garnishing order will be set aside where the affidavit in support sets out an amount including interest and the affidavit does not allege the existence of an agreement on the part of the debtor to pay interest: see ''Nevin Sadler-Brown Goodbrand Ltd. v Adola Mining Corp. and Prophecy Developments Ltd.'' (1988), 24 BCLR (2d) 341. '''Never''' claim court ordered interest in the affidavit. | The garnishing order may be set aside if the procedural requirements are not strictly complied with because it is considered an extraordinary remedy. For example, a pre-judgment garnishing order will be set aside where the affidavit in support sets out an amount including interest and the affidavit does not allege the existence of an agreement on the part of the debtor to pay interest: see ''Nevin Sadler-Brown Goodbrand Ltd. v Adola Mining Corp. and Prophecy Developments Ltd.'' (1988), 24 BCLR (2d) 341. '''Never''' claim court ordered interest in the affidavit. | ||
The court has discretion to set aside a pre-judgment garnishing order, but the applicant must submit a meritorious set-off claim or show extraordinary hardship arising out of the garnishment. While there is some conflicting law regarding whether the plaintiff’s solicitor may swear in an affidavit as to what is the amount owing (see ''Caribou Construction v Cementation Co (Canada)'' (1987), 11 BCLR (2d) 122 (SC); ''Trade Fortune Inc v Amalgamated Mill Supplies'' (1994), 89 BCLR (2d) 132 (SC)), most practitioners prefer never to swear an affidavit to support a pre-judgment garnishing order. Whenever possible, the | The court has discretion to set aside a pre-judgment garnishing order, but the applicant must submit a meritorious set-off claim or show extraordinary hardship arising out of the garnishment. While there is some conflicting law regarding whether the plaintiff’s solicitor may swear in an affidavit as to what is the amount owing (see ''Caribou Construction v Cementation Co (Canada)'' (1987), 11 BCLR (2d) 122 (SC); ''Trade Fortune Inc v Amalgamated Mill Supplies'' (1994), 89 BCLR (2d) 132 (SC)), most practitioners prefer never to swear an affidavit to support a pre-judgment garnishing order. Whenever possible, the plaintiff should swear the affidavit: see ''Samuel and Sons Travel v Right on Travel'' (1987), 19 BCLR (2d) 199. The remaining procedure is the same as for post-judgment garnishing orders (below) except that the court retains the money pending the action’s outcome. | ||
==== d) Procedure for Post-Judgment Garnishing Order ==== | ==== d) Procedure for Post-Judgment Garnishing Order ==== | ||
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'''Benefits including Employment Insurance, Canada Pension Plan, Old Age Security, workers compensation, social assistance and provincial disability benefits are usually exempt from garnishment, seizure or attachment.''' The exemptions are found in the statutes that govern these respective benefit programs. | '''Benefits including Employment Insurance, Canada Pension Plan, Old Age Security, workers compensation, social assistance and provincial disability benefits are usually exempt from garnishment, seizure or attachment.''' The exemptions are found in the statutes that govern these respective benefit programs. | ||
However, this exemption from garnishment does not apply to offsets or to debts to the government. For example debts to the federal crown may be collected from Canada Pension Plan benefits. Canada Revenue Agency is now routinely offsetting CPP and other benefits. Social assistance (welfare) is the only statutory benefit that is truly exempt from garnishment. '''The | However, this exemption from garnishment does not apply to offsets or to debts to the government. For example debts to the federal crown may be collected from Canada Pension Plan benefits. Canada Revenue Agency is now routinely offsetting CPP and other benefits. Social assistance (welfare) is the only statutory benefit that is truly exempt from garnishment. '''The creditor or debtor should also be advised that this protection against garnishment may not extend to a bank account into which the exempt income is deposited if it is commingled with other funds.''' | ||
=== 7. Enforcing a Judgment Outside of BC === | === 7. Enforcing a Judgment Outside of BC === | ||
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== C. Unsecured Creditors: Remedies and Options Before Judgment (Liens) == | == C. Unsecured Creditors: Remedies and Options Before Judgment (Liens) == | ||
A lien is a claim, encumbrance, or charge on property (real or personal) for payment of a debt, obligation, or duty. In many cases, a creditor is entitled to place a hold or lien over specific property that has benefitted from the individual’s material or labour. It acts as security from the individual’s material or labour and as security for the payment to the creditor. '''Property liens are complicated and potentially serious. Please refer | A lien is a claim, encumbrance, or charge on property (real or personal) for payment of a debt, obligation, or duty. In many cases, a creditor is entitled to place a hold or lien over specific property that has benefitted from the individual’s material or labour. It acts as security from the individual’s material or labour and as security for the payment to the creditor. '''Property liens are complicated and potentially serious. Please refer to a lawyer.''' The most common liens are listed below. | ||
=== 1. Liens on Land (Builder’s Liens) === | === 1. Liens on Land (Builder’s Liens) === | ||
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Unless an action to enforce a claim of lien is started and a certificate of pending litigation is registered in a Land Title Office within one year, the lien is extinguished (s 33(5)). Note that the owner may require the lien-holder to commence an action within 21 days, by sending the holder of a claim of lien notice in writing (s 33(2)). | Unless an action to enforce a claim of lien is started and a certificate of pending litigation is registered in a Land Title Office within one year, the lien is extinguished (s 33(5)). Note that the owner may require the lien-holder to commence an action within 21 days, by sending the holder of a claim of lien notice in writing (s 33(2)). | ||
=== 2. Liens on Chattels (Repairer’s Liens) === | === 2. Liens on Chattels (Repairer’s Liens) === | ||
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A copy of the acknowledgement of indebtedness must be included in the affidavit. If the acknowledgement has not been obtained or is not included, the affidavit is invalid. | A copy of the acknowledgement of indebtedness must be included in the affidavit. If the acknowledgement has not been obtained or is not included, the affidavit is invalid. | ||
If a | If a debtor's car has been seized, check with the Registrar-General to determine whether the acknowledgement of indebtedness was properly included, and whether the automobile, etc. was seized before the end of the limitation period: see ''Rudd’s Heavy Equipment Repairs Ltd v Blackstone Paving Ltd'' (1985), 34 ACWS (2d). | ||
=== 3. Buyer’s Lien === | === 3. Buyer’s Lien === | ||
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=== 5. Legal Advice on Liens === | === 5. Legal Advice on Liens === | ||
If the lien is valid and the | If the lien is valid and the debtor wishes to discharge the lien, but disputes the amount of the claim, the debtor may wish to make the payment to the lien-holder. The debtor should send an accompanying letter stating an intention to dispute the claim, and if they are required to sign documents acknowledging indebtedness before the chattels will be released, they should write the words “Without Prejudice” above the signature. In every case, the debtor should always ensure that the proper steps have been taken to discharge the lien upon payment. | ||