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A Primer on Debt Collection

When you lend money to someone in Ontario, whether as an individual or as a business, you expect to be paid back. If you know the borrower well, you may not even write up a formal contract; instead, you’ll simply handshake on a deal and agree upon their repayment terms. You likely never expect that you may not see that money come back to you.

For businesses, debt collection can often take the form of an unpaid invoice. Depending on a business’ billing practices, a customer or client may have an outstanding invoice that goes past due, and they refuse to pay, and are ignoring all communications. These do not need to be large invoices – even a few hundred dollars of a few thousand dollars can mean a loss for that business.

So how do individuals and businesses deal with debt collection or loan recovery? There are some options, but a debt collection lawyer can often help. 

When Negotiation Fails

If you are a creditor trying to reclaim money from a debtor, your likely first steps are going to be to try on your own. You may use common tactics such as phone calls, emails, regular mail or even registered mail to remind someone of their amount owing, and essentially coerce them into paying what they owe. You may even be willing to negotiate that amount down, depending on the circumstances.

Some individuals may not be able to afford to pay due to a change in their finances, or they may simply be distracted with other things. Yet other individuals, and even businesses, may simply refuse to pay. They can ignore all attempts at contact, and even if a third-party debt collection agency is retained, they may ignore those calls as well. 

The challenge for many creditors is that often these loans are unsecured. A secured loan, such as a mortgage or a line of credit from a bank, is secured against the assets that one owns. If you do not make your loan repayments, the lender can seize those assets. With a smaller loan though there is rarely any collateral as security, so there is much less threat of any consequence for failing to repay.

Or so it would seem…

How Debt Collection Lawyers Work

When you consult with a debt collection lawyer, your responsibility will be to provide them with all of the relevant documentation. What documents are there to prove the loan, and when repayment was expected? What communications have you had with debtor, and how many good faith efforts have you made that have gone ignored?

From there, a lawyer will help you review your options. They may suggest a demand letter with the threat of legal action should payment not be received in a reasonable timeframe. However, they may recommend proceeding directly with a court action, known as a claim, for the amount owed, plus any interest and other associated costs.

It is important to note that the amount owed will determine which court procedure is followed. If the outstanding loan is under $35,000 then the matter falls under the jurisdiction of the Small Claims Court. This can be a slightly more straightforward procedure since it is intended to be more accessible to plaintiffs, but having a lawyer involved may still be beneficial. 

There are also strict laws regarding when a creditor can bring a claim. Debts are governed by a statute of limitations under the Limitations Act. Outside of a mortgage, a creditor may not be able to sue a debtor once the two-year limitations period has passed.  A knowledgeable litigation lawyer can advise you on your right to commence a claim.

The Claims Process

Bringing a legal claim forward involves filing that claim properly with the court and serving it upon the debtor themselves. Naturally this can be tricky if the individual is hiding or hard to track down, but it is possible to motion the Court to serve it to their mailbox or in an alternative means if they cannot be reached directly. 

Once they have been served, the debtor must respond. They have only a short window to file a defence, where they may defend their non-payment by claiming an issue with the work or service that they received or possibly that there was no agreement in place at all.  Alternatively, they may, at that point, choose to pay the amount owing. Or, unsurprisingly, they may continue to do nothing, and the legal process will continue. 

While the process may vary based on several factors, there are some important stages to note. After a defence is filed, the typical process for claims more than $35,000 includes the exchange of relevant documents, the examination of both parties so that questions can be asked and answered, and then the matter proceeds to a trial.  If successful at trial, the judge will make an order or judgment outlining the amount owed by the defendant debtor.  However, one must keep in mind that this is only a piece of paper stating that an amount is owing.  It does not necessarily mean that the defendant debtor will now voluntarily pay up.  In such cases, the creditor plaintiff can seek a judgment debtor examination where questions can be asked of the debtor to thoroughly examine their assets. This means making inquiries about their bank accounts, any property that they own, or any other assets that they hold. This can occur annually, and debtors are required to show up and participate if ordered to do so.  With this important information, steps can be taken by the plaintiff creditor to enforce the judgment.

Some of the potential enforcement steps could include filing a writ of seizure and sale with the sheriff (yes, we still have those!), garnishing the debtor’s bank accounts or even requesting a garnishment of their wages from their employer. These enforcement steps are also strictly regulated under the law, and a lawyer can guide that process. 

Final Thoughts

Debt collection can be complex, but that does not mean that significant debts need to remain outstanding forever. For small amounts it may be easy to write them off after making your own efforts to collect, but a large outstanding amount can need a bit more motivation, and lawyers can help with that.

We support creditors in getting their money back all throughout the Cambridge, KItchener, and Waterloo Regions. Contact us today to set up a consultation.