Credit 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.

In Canada, there are three major credit bureaus: Equifax Canada, NCB Inc. and TransUnion Canada

Most 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.
 
Credit bureaus obtain their information from three major sources:

 1. Consumers supply information, primarily from filling out application forms for credit.

 2. Public records provide information on such matters as bankruptcies, Court judgements, foreclosures and agreements registered with Provincial authorities.

 3. 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.

The 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; skip.

The FICO® score
The 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.

Reporting Standards
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. 

A consumer 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.
 

Credit Reporting Acts Protect Several Rights of Consumers:
 

1. The Act applies only to consumer transactions.
2. Reports 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.
3. Before 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.
4. 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.
5. 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.
6. A consumer has a right to see the file and has a right to receive a copy of any report.

Creditors' Remedies

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.

Secured Creditors

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:

• Debenture or Security over all the Assets of a Business

 

The creditor 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.

• Specific Security in Conjunction with the Sale of Inventory - Purchase Money Security Interest (PMSI - pronounced "pimzee")

 

This 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.

• Specific Security taken over personal property (i.e. property belonging to an individual and not a corporate entity) such as a vehicle or furniture

This type 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.

• Bank Act Security
  

The Bank 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.

• Assignment of Book Accounts

  This type of security is usually taken by banks and is security covering the business's Accounts Receivables.

   

Commercial Landlords

Landlords have 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.

Government Creditors such as CCRA and Student Loans

Government 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.

They 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.

Limitations Acts - "Statute of Limitations"

NOTE: Please check with a lawyer if the debt in question is significant. The law can change at any time, especially the law affecting the CRA. CRA has the habit of rewriting the law whenever a court decision goes against them.

The Federal Government and the Provinces have Limitation Acts which provide a limit on the time an unsecured debt survives. If an unsecured debt is not collected or payments are not made on the unsecured debt then after a certain time no legal action can be taken to collect the debt.

A March 4, 2003 decision of the Supreme Court of Canada, Markevich v. The Queen decided that limitations applied to CCRA as well as other Crown proceedings. Section 32 of the Crown Liability and Proceedings Act and Section 3 (5) of the BC Limitation Act barred collection of the Federal and Provincial portions of the debt since the debt was more than 6 years old. This decision was "overruled" when parliament amended section 222 of the Income Tax Act to provide for a 10 year limitation period.
Collins v. Canada, 2005 FCA 1431 CanLII.

Examples from various provinces and the Federal Government:

• British Columbia - Section 3 (5) of the BC Limitation Act sets 6 years as the limit for debt.
• Alberta - The Alberta Limitations Act sets 2 years as the term which is extended to 10 years if there is a judgement.
• Ontario - The Ontario Limitation Act 2002, came into force on January 1, 2004. It sets two years as the term (Section 4). This limitation will be reinstated where the debtor acknowledges the debt or makes a partial payment towards repayment of his debt. If the default occurred prior to January 1, 2004, the creditor will continue to have 6 years to pursue the claim. However, if the default occurred after January 1, 2004 then the 2-year rule applies.
• Federal - Section 32 of the Crown Liability and Proceedings Act sets 6 years as the limit for debt.

Unsecured Creditors

Unsecured creditors have remedies which go from the relatively inexpensive to the more difficult and more expensive:

• Generally speaking, the Act is intended to operate for the benefit of both bankrupts and their creditors. While the Act is not intended for use as a tool for collection of individual debts, in certain circumstances that use is permitted.

  WHEN MAY A CREDITOR FILE A PETITION
  TO PLACE A DEBTOR INTO BANKRUPTCY?

  A creditor may bring a Petition for a Receiving Order (i.e. an Order to adjudge someone bankrupt) where:

  1. It is owed over $1,000 on an unsecured basis - to achieve such status, security may be waived to the extent necessary; and
  2. There has been an act of bankruptcy by the debtor within the six months that precede filing of the Petition.

  
  Acts of bankruptcy include the following:

  • fraudulent conveyances, gifts, deliveries or transfers of property or the creation of charges thereon in circumstances which would constitute any such charge as a fraudulent preference;
  • the absenting of oneself from one's dwelling house if done with intent to defeat or delay creditors;
  • the failure to satisfy a Writ of Seizure and Sale with the result that it is returned to the Court Registry marked "nulla bona" or "unable to locate assets";
  • the exhibiting to a meeting of creditors of any statement of assets and liabilities that shows the debtor to be insolvent or admits of an inability to pay debts generally;
  • the secreting or removal of assets (or attempts thereat) with intent to defraud, defeat or delay creditors of any of them;
  • the giving of notice to any creditor that the debtor has suspended or is about to suspend payment of debts generally; and
  • the failure to pay liabilities generally as they become due.
  • An individual creditor can utilize the Act to Petition someone into bankruptcy - without proof of failure to pay other creditors - using grounds (1), (2), (3) and (5) above. Ground (7) above usually requires proof of at least two other creditors who are not being paid as agreed unless "special circumstances" pertain. "Special circumstances" have been held to pertain where there has been a breach of trust, fraud or near-fraud or (in some instances) repeated demands for payment and repeated default. It should, however, be kept in mind that strict proof of both your unsecured claim and an act of bankruptcy are necessary to have someone adjudged bankrupt.

   

• WHEN SHOULD A CREDITOR PETITION
  A DEBTOR INTO BANKRUPTCY?

  In petitioning a debtor one has to retain a lawyer to prepare the necessary documents, attend to service and seek the Receiving Order before the Registrar in Bankruptcy or a Judge in Chambers. The petitioning creditor must also make arrangements for a Trustee to act and may be liable for payment of the costs incurred by the Trustee where realizations are insufficient for that purpose. To avert such a prospect, arrangements are usually made to limit the petitioning creditor's obligation to the Trustee to the amount of an agreed "retainer".

  Before deciding to launch a Petition the following should be considered:

  • The existence and amounts of preferred claims that may rank in priority; (NOTE: the Bankruptcy and Insolvency Act, effective November 30, 1992, did away with the preferred status for statutory creditors such as Revenue Canada Taxation, provincial and federal government claims.)
  • The quantum of unsecured claims which may rank pari passu;
  • The occurrence of preferences, reviewable transactions and/or settlements within the three month to five year review periods prior to the filing of your Petition;
  • Your receipt of payments beyond the "usual" amounts within the three months prior to filing of your Petition; and
  • The validity of any security you may hold.
  • There are certain instances where petitions for Receiving Orders are particularly potent tools. Some of them are the following:
    • Where the debtor has transferred property to another individual without fair consideration, such as transfer of house to related party for $1.00, settlement of debt, such as transfer of RRSP to insurance company or to prefer one creditor over all others;
    • Where your debtor does not wish to lose a particular element of his property (a yacht, exotic car, shares in a Company, etc.) or does not wish his affairs and dealings to be scrutinized by a Trustee and/or his creditors;
    • Where your debtor anticipates receipt of an inheritance;
    • Where you are dealing with a debtor who needs to be a Director or Officer of one or more Companies. The interaction of the Bankruptcy and Insolvency Act and the Company Act result in such a person ceasing to be a Director and ceasing to be eligible to be an Officer upon being adjudged bankrupt;
    • Where you are dealing with a debtor who may lose or have modified his professional accreditation as a result of being adjudged bankrupt; or
    • Where your debtor is a person who is always "dealing" and doesn't wish to disclose his status as an undischarged bankrupt when entering upon negotiations or where he might lose the benefit of a particular contract, lease or business prospect by being adjudged bankrupt.

  
  PROCEDURE FOR PETITIONING OF A CREDITOR

  1. Letter of demand stating a bankruptcy petition will be lodged;
  2. Letter from lawyer stating that endorsed draft bankruptcy petition will be lodged on a specific date if settlement of matter is not performed before;
  3. Have an agreement with a Trustee that he acts as the Trustee in the petition; and
  4. When petition is granted, a third party retainer is forwarded to Trustee.

What Assets cannot be Seized by Unsecured Creditors

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. The assets protected from seizure, are the same assets protected in the event of a bankruptcy and are listed by jurisdiction at this site.

Bankruptcy 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.

Links to More Information

Filing Small Claims Actions Online

Personal Property Security Acts

Personal Property Security Acts (PPSA) are registries set up in certain provinces (Ontario, New Brunswick, Nova Scotia, Saskatchewan, British Columbia, Newfoundland, Northwest Territories, Manitoba and Yukon), at which secured creditors register the security interest the have in assets of the company or person they lent money to.

Registration serves as a public notice that the interest exists against the collateral.

PPSA's do not provide for registration of all secured assets. For example, the BC registry does not accept builders or warehousemen liens, judgments, real property mortgages, or motor vehicle ownership.

Federal PPSA

BC PPSA

Manitoba Personal Property Registry

NB Personal Property Registry

Newfoundland PPSA

NS Personal Property Registry

Northwest Territories PPSA

Ontario Personal Property Registry

Ontario PPSA

Saskatchewan PPSA