Effective debt collection starts with
being careful to whom debt is extended.
reporting agencies or credit bureaus, collect information about consumers'
financial affairs and sell that information to their business members,
such as credit grantors, employers and insurance companies. The
credit bureaus charge annual fees as well as a fee for each credit report
requested by members.
there are three major credit bureaus: Equifax
Canada, NCB Inc. and
national and international creditors, such as banks and department stores,
are registered with all bureaus, so the chances are good that whatever
shows up on one credit report will also appear on the others.
bureaus obtain their information from three major sources:
Consumers supply information, primarily from filling out application
forms for credit.
Public records provide information on such matters as bankruptcies,
Court judgements, foreclosures and agreements registered with Provincial
The major credit grantors and collection agencies send their credit
files electronically to the credit bureau every month, resulting in files
that include the account number, outstanding balance, and a nine point
scale indicating whether a payment was made on time or late.
nine point scale is as follows:
0 Too new to rate; approved but not used.
1 Pays (or paid) within 30 days
of billing; pays account as agreed.
2 Pays (or paid) in more than 30
days, but not more than 60 days, or one payment past due.
3 Pays (or paid) in more than 60
days, but not more than 90 days, or two payments past due.
4 Pays (or paid) in more than 90
days, but not more than 120 days, or three or more payments past due.
5 Account is at least 120 days overdue,
but is not yet rated 9.
6. (Code 6 does not exist.)
7 Making regular payments under
a consolidation order or similar arrangement.
8 Repossession (indicate if it is
a voluntary return of merchandise by the consumer).
9 Bad debt; placed for collection;
FICO® score, developed by Fair, Isaac (the pioneer in credit scoring)
is a number between 300 and 850. A FICO® score is a snapshot of a
person's credit rating at a particular point in time. The higher the FICO® score the the better the credit rating.
Credit Bureaus share information within a system known as the National
Equifax Network. The network observes strict standards governing reporting
of adverse information and purging of credit
reporting records. The credit bureau must investigate and use its best
efforts to confirm disputed negative information.
has a right to full disclosure of the content and the source of any information
on his or her file. The Registrar of Credit Reporting Agencies recognizes
that all complainants consider their
issues to be very serious. For that reason the Credit Reporting Branch
insists that credit reporting agencies and creditors provide prompt and
complete reports to the consumer about adverse credit information.
Reporting Acts Protect Several Rights of Consumers:
- The Act
applies only to consumer transactions.
may be given to a person seeking information only for the purpose of:
extending credit or collecting a debt; a tenancy inquiry employment
or insurance verification under authority granted by a government statute
otherwise, as a direct business requirement.
a person may obtain a report, she or he must: have the consumer's consent
in writing, or notify the consumer by mailing a notice postmarked at
least three days before obtaining the report.
- If a consumer
is denied credit or has an increased cost as a result of information
obtained in a credit report, the person must be notified promptly by
the person denying credit.
- The consumer
has a right to place a 100 word statement (50 recommended) on the credit
bureau file, to be given to anyone who obtains a future report.
- A consumer
has a right to see the file and has a right to receive a copy of any
The action a creditor
can take, in the case of a default on a loan, or money owed for goods
or services supplied, to recover the monies owed to him will depend on
the security the creditor has or the class of creditor he is.
A creditor with
security has the strongest position of any creditor because he has the
right to realize on his security or seize the assets covered by his security
to repay the debt. A creditor may have the following security:
is defined as that action that a lender will take to repossess
and sell a piece of property for defaults in mortgage payments.
The usual procedure
is for the mortgage holder to hire a lawyer to commence the foreclosure
procedure. A current valuation or an appraisal of the property
is made to establish the value.
Depending on the equity
in the property or the anticipated shortfall, the lawyer, on behalf
of the mortgage holder, will seek from the court an appropriate
redemption period. i.e. the period of time the court will
establish for which the property will be for sale before the owner
will have to vacate and the time which potentially the mortgage
holder can take control of the property.
If there is a significant
anticipated shortfall the lawyer for the mortgage holder will
argue for no redemption period. If there is anticipated equity
then the owner of the property will ask the court for a longer
redemption period so the property can be sold in an orderly manner
and not as a "fire sale", thus allowing the owner to
sell for as high a price as possible and therefore not suffer
a loss or worse a shortfall. Typically the courts will grant a
6 month redemption period.
Conduct of Sale
is also a key issue. The court can grant conduct of sale to the
owner or the mortgage holder usually dependent on the length of
the redemption period.
When a satisfactory
offer has been received for the property the offer will be taken
to court by the lawyer for the mortgage holder so the court can
approve the sale.
If there is a shortfall
the mortgage holder will look to the owner to make up the shortfall.
or Security over all the Assets of a Business
who has this type of security should consult with a lawyer to ensure
that the correct steps in the realization procedure have been followed.
For example, 10 days notice for repayment must be given before an
Agent or Receiver can be appointed to realize on the security (Section
244 of the Bankruptcy and Insolvency Act). In exceptional
circumstances and with the approval of the court this notice period
can be shortened. This period can also be shortened if the debtor
waives the 10 day notice period.
Security in Conjunction with the Sale of Inventory - Purchase
Money Security Interest (PMSI - pronounced "pimzee")
type of security is covered under the Personal Property Security
Acts of the provinces. It is security that a person takes in property,
such as inventory, that secures payment with regard to those assets
of all or part of its purchase price.
This type of security can be realized on but again a lawyer should
be consulted to ensure the proper realization steps have been taken.
Security taken over personal property (i.e. property belonging to
an individual and not a corporate entity) such as a vehicle or furniture
of security is usually realized by utilizing a bailiff to seize the
asset(s). Care should be exercised and perhaps a lawyer should be
consulted to ensure the proper steps have been followed. For example,
in BC, when seizing a vehicle that is personal property (i.e. property
belonging to an individual and not a corporate entity) there is a "Seize of Sue" clause in effect. This has the effect that
the creditor can seize or sue but not both. Therefore, if a vehicle
is seized and then sold and there is a shortfall the creditor cannot
pursue the debtor to make up the shortfall.
Act has a provision which allows Banks to take inventory as security.
This security also gives the bank the right to collect receivables
that arose because of the sale of that inventory.
of Book Accounts
of security is usually taken by banks and is security covering the
business's Accounts Receivables.
special rights granted them by the clauses in the lease they sign with
the tenant and by the laws of their province. For example, in BC the
Commercial Tenancy Act, gives a landlord the right to Distrain or
the seize the assets on the premises for payment of rental arrears. The
landlord's right to seize assets covers all the assets except those assets
secured by certain creditors. A lawyer should be consulted to ensure the
proper steps are taken to realize on a Rent Distraint.
Creditors such as CCRA and Student Loans
creditors have special rights as they are in the enviable position of
being able to get specific collection laws enacted with much more ease
than other creditors.
rank before other creditors in the case of commercial debt for arrears
of withholding taxes and collections of GST. In the case of student loans
they have lobbied to have a special draconian law passed so that student
loans, no matter what the hardship is, cannot be erased by bankruptcy
unless the debtor has been out of school for 10 years.
Acts - "Statute of Limitations"
For more information on this please refer to http://www.bankruptcycanada.com/limitationacts.htm
have remedies which go from the relatively inexpensive to the more difficult
and more expensive:
notices and phone calls to the debtor is the first step taken.
The dunning letters get progressively stronger the longer the debtor
goes without making a payment or an arrangement to settle the debt.
It is important to be persistent and consistent in following-up so
the debtor knows he must deal with this issue. Collection efforts
can be persistent but collectors cannot phone at unreasonable hours
or jeopardize the debtor's job by interrupting him or her at work.
a judgement at court, especially Small Claims Court can be effective.
Small Claims Courts deal with small sums of money and are less formal
than regular courts. For example, in BC Small Claims Court can deal
with issues involving sums up to $10,000. It might be prudent for
the creditor to reduce his debt from say $12, 000 to $10,000 in order
to use the facilities of the the Small Claims Court. It is common
that people deal with issues at Small Claims Court without retaining
a lawyer, although a lawyer can be retained if desired.
An action is started simply by filling out a form supplied by the
Small Claims Court and paying a fee. The Small Claims Court will send
a notice to the debtor advising him of the action and asking for a
response. A settlement conference is set. The Small Claims Court encourages
settlement but a judgement can be issued. It is not unusual for default
judgements to be granted. These are judgements on actions which the
debtor did not contest.
News Flash! March 30, 2005 - BC Makes it Easier to use Civil Courts. The BC government is making it easier for people to use the civil courts. Three major changes will take effect on September 1, 2005:
- The upper limit of small claims court will rise to $25,000 from the current $10,000.
- People will be allowed to sue the government in Provincial Court as well as BC Supreme Court.
- A pilot program will test-drive a handful of cost-saving measures in cases in which the claim is for $25,000 to $100,000.
Attorney-General Geoff Plant, who announced the changes at a Press Conference in Vancouver on March 20, 2005, said that approximately one-third of all the files in small-claims court are for exactly $10,000. "That shows that people want to go to that court so badly that they're willing to abandon a portion of their real entitlement to get there," Plant said.
on a judgement can be done by garnisheeing a bank account or seizing
assets, usually with the services of a bailif
Assets cannot be Seized by Unsecured Creditors
when realizing on security pursuant to a judgement, and not security held,
cannot seize certain assets protected by provincial or territorial law.
The assets protected from seizure vary with the province or territory.
assets protected from seizure, are the same assets protected in the event
of a bankruptcy and are listed by jurisdiction at this site.
and Proposals Filed, Pursuant to the Bankruptcy and Insolvency Act,
Stays or Stops all Collection Actions
By law, all actions
against a bankrupt must cease once the documents are filed. This does
not apply to secured creditors such as banks holding, for example, a lien
on a car.
It does apply
to a landlord who is in the process of a rent distraint. It also, in the
case of filing a Proposal, pursuant to
the Bankruptcy and Insolvency Act, prevents a secured creditor
from realizing on his security until the proposal has been dealt with.
Funds in court
seized by a creditor pursuant to a garnishment, after judgement, will
be taken by the Trustee.