Collecting a Debt

Initial Steps

If you are owed money and the debtor has refused to pay or won’t respond to your requests for payment, you can attempt collecting your debt through the Courts of British Columbia. A court judgment may convince the debtor to pay.

Before suing, you should consider the amount owing. A small debt may not be worth starting a lawsuit. If the debt is not an exact sum, it may not be considered a “debt” at law and may be more complicated to collect. For example, money you are owed because someone injured you or has damaged your property is not a “debt” at law.

Demand Payment from a Debtor in Writing

You should demand payment from the debtor in writing. There is no magic to the exact words you should use. Set out the amount owing and demand payment by a certain date. You should warn the debtor that you intend to sue if the money is not paid. If you are unsure of what to write, you can contact us for more information on how to write a demand letter to a debtor.

Be careful when demanding payment: there is consumer protection laws that govern the actions you can and cannot take in attempting to collect the debt. In this case, the B.C. Business Practices and Consumer Protection Act, SBC 2004, c2 prevents you from harassing a debtor.

Most debts in British Columbia are governed by a two-year limitation period. With some exceptions, you can’t get judgment for a debt unless you started the lawsuit within two years of the date the amount became due and payable. If the debtor responds to a demand and acknowledges that they owe the debt, the limitation period may be extended. Acknowledgment can re-start the limitation period on the date the debtor confirms the debt, but not after the limitation period has already expired.

If you have demanded repayment and are within the two-year limitation period, you can pursue the debt in court. There are two levels of court within British Columbia in which you can pursue the debt: the Provincial Court (also know as the Small Claims Court) and the Supreme Court.

Provincial Court is easier to navigate for non-lawyers, and offers helpful mechanisms for enforcing judgments. However, the Provincial Court can only make awards for debts up to $35,000. Debts in excess of $35,000 must be collected through the Supreme Court, unless you abandon the excess amount over $35,000 in order to proceed in Provincial Court.

If you owe an amount well over $35,000, you will probably want to hire a lawyer and bring your claim in the Supreme Court. While the Supreme Court is more difficult to navigate for non-lawyers than Provincial Court, the Supreme Court offers options like summary trials and fast track which can help to keep legal costs down. Summary trials are held without live witness evidence, on the basis that you have written statements of evidence (affidavits). Fast track can be used for debts up to $100,000, and streamline some court processes and offer quicker trial scheduling. These are both valuable tools that can assist creditors with negotiating Supreme Court procedures in order to collect on a debt.

Once you have a judgment, you have ten years to collect the payment before it expires. The debtor may not pay the judgment voluntarily, in which case you may want to pursue the debtor for payment in execution of the court order.

Garnishing Funds

There is one more option that is valuable for creditors, the process is known as garnishment. Below is a brief overview of garnishment.

Garnishment is the process of “attaching” a judgment to specific funds in a debtor’s bank account or other money owed to the debtor. To be able to garnish funds from a bank account, you must have the debtor’s banking information, including the specific bank branch used by the debtor. If you are garnishing wages, special rules and limitations apply.

The creditor must first obtain a garnishing order by application to the court. Usually this will not require attendance in court, but will be granted as a “desk order” without any necessary appearance before a judge. The application requires written evidence in support of the order. If the order is granted, the garnishee (i.e. the bank) is usually served first, followed by the debtor in order to maintain surprise and to prevent removal of the funds before garnishment. Since courts in BC require strict compliance with the rules, it is a good idea to enlist a lawyer to assist you to garnish.

If there are funds in the bank account, the garnishee will usually pay them into court pursuant to the order, and the creditor can then apply for the funds to be paid out of court on notice to the garnishee and to the debtor.

If there are insufficient funds in the account to satisfy the entire judgment, multiple garnishing orders may be required, however, garnishing orders are only good for one garnishment, and must be repeated each time the creditor wishes to garnish. This can be challenging if the debtor changes banks, for example, once garnished.

In certain circumstances, garnishing orders may be granted before judgment or even before the debtor has been served with any documents indicating a lawsuit has been started. This is known as a pre-judgment garnishing order and is subject to special requirements.  It can be extremely effective in catching a debtor by surprise with money in his or her bank account. If monies are paid into court before judgment pursuant to a pre-judgment garnishing order, the creditor cannot have the funds paid out of court until the creditor obtains judgment.

Final Thoughts

In conclusion, it is important to be aware of how to deal with debtors before you begin to take action towards collecting a debt. Further, the Courts of British Columbia can be an effective method for collecting a debt. Both the Provincial and Supreme Courts offer methods for enforcing and collecting debts, which, if used effectively, can be of assistance to businesses seeking to collect debts. If the debt is large or you intend to garnish, it is preferable to enlist the services of a lawyer.