Difference between revisions of "Creditors' Remedies against Debtors (10:III)"

Under s 67(2), an election to proceed against the collateral results in the extinguishment of the debtor’s obligations under the security agreement or any related agreement (with the exception of land mortgages executed before July 1, 1973), thereby automatically releasing any guarantor or indemnitor of the obligations contained in the security agreement. However, ss 67(3) and 67(4) contain exceptions.

 

Since proceeding against the collateral precludes the creditor from recovering the deficiency of the debt, the creditor is well advised to collect as much of the debt as possible, from other sources prior to seizing the goods.  Remember, however, that if the creditor collects 2/3 or more of the debt, they lose the right to seize the goods.

Therefore, the sale proceeds become subject to a bankruptcy stay; and the creditor may have to share the proceeds of the seizure and sale with other creditors as they will no longer have priority based on secured creditor status.

Exceptions include cases of fraud or cases where the stay is unjust. Where there is alleged fraud or the stay is unjust for other reasons, the creditor can apply to the court to have the stay removed against them specifically. Generally, the stay is removed so that litigants can continue their litigation.

Exceptions to this principle of pro rata distribution allow preference to sheriff’s costs, costs to the creditor at whose instance the seizure and levy were made, and wage claims that do not exceed three month’s wages, or salary. Further, the ''Family Maintenance Enforcement Act'', RSBC 1996, c 127 provides that proceeds realized on execution  under that Act are not subject to distribution under the ''Creditor Assistance Act''. In addition, some statutory liens and charges may take priority over the rateable distribution under the Act.  

Under s 3, once the sheriff collects money, an event called a levy, the persons who qualify under the Act distribute it. These persons must  have filed a writ of execution prior to the levy or must file a writ within one month of the date notice of the levy was entered. Where the creditor does not have a judgment against the debtor at the time of levy, and the claim is for debt, the creditor may obtain a certificate of claim under  the ''Creditor Assistance Act''. If this certificate is delivered to the sheriff within one month of the levy, the creditor may participate in the rateable distribution. The procedure for the certificate of claim is in ss 6 – 21 of the Act.  

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.

Under s 55 of the ''Court Order Enforcement Act'' [''COEA''], any judgment creditor may have the property of the judgment debtor seized and sold  by the sheriff to satisfy the amount owing under the judgment. Section 60 of the ''COEA'' directs that any surplus after payment of the judgment, interest, and reasonable costs of seizure and sale be paid to the debtor.   

#Necessary clothing, medical and dental aids that are required by the debtor and their dependents;  

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 principal residence is located outside of these boundaries, $9,000 is the prescribed amount of equity exemption. These values are calculated using the net equity.   

:'''NOTE:''' The B.C. Court of Appeal decision in ''[https://www.canlii.org/en/bc/bcca/doc/2012/2012bcca46/2012bcca46.html?autocompleteStr=Atwal%20(Re)%2C%202012%20BCCA%2046%20&autocompletePos=1 Atwal (Re)'', 2012 BCCA 46] confirmed that a debtor whose property is sold by a trustee under  the ''Bankruptcy and Insolvency Act'', RSC 1985, c B-3 [''BIA''] is entitled to the above exemptions if the value of their property exceeds that which is prescribed in the legislation. Thus, if a debtor’s vehicle, valued in excess of $5000 is sold by a trustee in bankruptcy, the debtor is entitled to $5000 of the sale price, as provided by the exemption.  

Any goods, chattels and effects of the judgment debtor (''COEA'', s 55), money, bank notes, cheques, or other securities for money, such as  shares of an incorporated company in British Columbia (s 64; ''[https://www.canlii.org/en/bc/bcsc/doc/1984/1984canlii722/1984canlii722.html?autocompleteStr=Peligren%20v%20Ajac%E2%80%99s%20Equipment%20(1982)%20Inc%20(1984)%2C%2056%20BCLR%2017%2C%20%5B1984%5D%205%20WWR%20563%20(SC)&autocompletePos=1 Peligren v Ajac’s Equipment'' (1982) Inc (1984), 56 BCLR 17, [1984<nowiki>]</nowiki> 5 WWR 563  (BCSC)]), and any legal or equitable present, future, executory or contingent interest in land (s 81) may be seized after the exemptions from s 71(1) of the ''COEA'' are applied.  

'''Sections 71(23) and (34) set out three exceptions to the personal property exemptions provided in s 71(1) of the ''COEA'':'''  

In addition, s 65 of the ''Insurance Act'', the Insurance Act, RSBC 1996, c 226 allows for the exemption of certain insurance policies. Section 65(1) states that  if insurance money has already been payable then it is exempt; essentially creditors cannot attach once money has been transferred. Section  65(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.  

Certain interests have been held to fall outside s 71 and therefore are not exempt from seizure. Partial interest and equitable interests do not fall within s 71 and thus, for example, a purchaser under a conditional sales agreement cannot prevent seizure of the goods sold under the agreement. Similarly, the section does not apply to a charging order or a garnishing order since the section only refers to “forced seizure and sale”. Thus, monies in court and debts or wages being garnished cannot form part of the judgment debtor’s exemption under the ''COEA''.  

The judgment creditor obtains an order for seizure and sale (Small Claims Court) or a writ of seizure and sale (Supreme Court) directing the  sheriff or bailiff to seize and sell sufficient goods or securities to satisfy the debt plus expenses (''COEA'', ss 58 and 60). The seizure of  shares involves particular problems: see ss 64 and 65; see also ''[https://www.canlii.org/en/bc/bcsc/doc/1984/1984canlii722/1984canlii722.html?autocompleteStr=Peligren%20v%20Ajac%E2%80%99s%20Equipment%20(1982)%20Inc%20(1984)%2C%2056%20BCLR%2017%2C%20%5B1984%5D%205%20WWR%20563%20(SC)&autocompletePos=1 Peligren v Ajac's Equipment'' (1982) Inc (1984), 56 BCLR 17, [1984<nowiki>]</nowiki> 5 WWR 563 (BCSC)].

Where the sheriff seizes goods, the sheriff’s officers are entitled to assume that all the goods and chattels on the premises are the property  of the judgment debtor at the time of the seizure. The judgment debtor has a duty to claim that some of the property is personal property or  the personal property of others: see ''[https://www.canlii.org/en/bc/bcca/doc/1987/1987canlii2543/1987canlii2543.html?autocompleteStr=Supreme%20Auto%20Body%20v%20British%20Columbia%20(1987)%2C%2021%20BCLR%20(2d)%20101%20(CA)&autocompletePos=1 Supreme Auto Body v. British Columbia'' (1987), 21 BCLR (2d) 101 (CA)].   

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 of ''Court Order Enforcement Act'').  Once a judgment is registered, the judgment creditor may seek a court order to have the sheriff sell the land (ss 92 and 96). If the land is held in joint ownership and the debt is in one owner’s name only, the enforcement proceedings are similar, but a creditor can only apply to have the judgment debtor’s portion of the land sold. In this case, the debtor’s joint tenancy interest is considered severed. The buyer/new owner of the partial interest in the land can be the judgment creditor, a third party, or the non-debtor owner. After the sale of the land, the new owner or the remaining non-debtor owner can bring an application under the Partition of Property Act to ‘buy out’ the new owner. '''The judgment creditor must renew the judgment after two years or it is extinguished''' (ss 83 and 91, COEA), unless it is a non-expiring judgment (i.e. a judgment registered under the ''Family Maintenance Enforcement Act'').

=== 5. Garnishment of Bank Accounts and other Accounts Receivable ===

==== a) Garnishment Before or After Judgement ====

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.  - damages for a breach of contract must be quantified as a term of that contract (see ''[https://www.canlii.org/en/bc/bcsc/doc/2010/2010bcsc409/2010bcsc409.html?autocompleteStr=Ocean%20Floors%20Ltd%20v%20Crocan%20Construction%20Ltd%20(2010)%2C%202010%20BCSC%20409&autocompletePos=1 Ocean Floors Ltd v Crocan Construction Ltd'' (2010), 2010 BCSC 409]).  A definition of liquidated sum is found in ''[https://www.canlii.org/en/bc/bcsc/doc/2005/2005bcsc920/2005bcsc920.html?autocompleteStr=Steele%20v%20Riverside%20Forest%20Products%20Ltd%20(2005)%2C%202005%20BCSC%20920&autocompletePos=1 Steele v Riverside Forest Products Ltd'' (2005), 2005 BCSC 920]. The accompanying affidavit to a pre-judgment garnishing order 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 themself.

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 lowered under s 4. The creditor should be advised that hardship may be used as a defence.

A garnishee who wishes to dispute indebtedness to the defendant or judgment debtor, 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.'''  

Any debt that is “due or accruing due” to a judgment debtor may be garnished by a judgment creditor. This requires that the debt be an existing or perfected debt even though payment is not yet due. Bank accounts can be garnished as long as it is not a joint bank account, except where the debt is owed jointly by the same parties or the creditor is exercising its right of offset. For example, a creditor bank may garnish a debtor’s personal account, including a joint account, to offset the debtor’s debts to that bank where the amounts owed to each joint account holder can be determined. Term deposits may be garnished as long as any conditions on withdrawal are mere matters of procedure and administration, though there may be complications where the account is transferable.   

The creditor must swear in an affidavit that an action on the debt is pending, provide the date of its commencement, the nature of the cause of action, and the actual amount (i.e. liquidated or ascertained sum) of the debt, claim or demand, and that the same is justly due and owing. The affidavit may be sworn before or after the action is commenced (although the form of the affidavit will differ). The affidavit must also state that another person, the garnishee, is indebted to the debtor, and provide the garnishee’s address (COEA, ss 3(2)(e) and (f)).

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 the plaintiff’s solicitor may swear in an affidavit as to what is the amount owing (see ''[https://www.canlii.org/en/bc/bcsc/doc/1987/1987canlii2685/1987canlii2685.html?autocompleteStr=Cementation%20&autocompletePos=2 Caribou Construction v Cementation Co (Canada)'' (1987), 11 BCLR (2d) 122 (SC)]; ''[https://www.canlii.org/en/bc/bcsc/doc/1994/1994canlii845/1994canlii845.html?autocompleteStr=Trade%20Fortune%20Inc%20v%20Amalgamated%20Mill%20Supplies%20(1994)%2C%2089%20BCLR%20(2d)%20132%20(SC)&autocompletePos=1 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. Practitioners should only swear an affidavit where they are personally aware of the facts and not just based on what a client alleges as fact. 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.