Debtor Creditor Exam Review Week 1 - Types of Debtors and Obtaining Information from Clients (Chapter 1 and 2) Nature of Debt Collection Debt collection can be done by a law clerk or a paralegal. Debt collection can arise from the failure to pay what is owed on a contract for goods or services or for loan of money. There are 3 types of Debtors oThe Debtor who cannot pay Happens most often in a consumer debt situation Where an individual income is not enough to cover ( the debtor could make assignment in Bankruptcy or could negotiate a consumer proposal) In this case, the creditor obtains default judgement and can proceed to enforce it. oThe Debtor who will not pay The debtor in this case could pay the amount owing however, chooses not to and resorts to various tactics to make it difficult for the creditor to obtain judgement and to enforce it "called judgement proof" Or the creditor could agree to take less than what is owed because the debtor makes things very difficult The creditor may obtain a judgement but then find that the debtor has no assets to seize or sell. oThe Debtor has a defence for non-payment The debtor is dissatisfied customer for goods and services who has refused to pay because they allege that the creditor has refused to pay as they allege that the creditor has sold them a defective product or been negligent in providing service The debtor can sue the creditor for breach of contract or for furnishing a defective product or service. If the creditor sues, then the debtor can respond to it with vigorous defence claiming that the money is not owing cause of breach The debtor can counterclaim for damages If there is no substantive defence for non-payment and the debtor is simply refusing or is unable to pay, case need not be treated by a lawyer Paralegals can handle cases where the debt collection is $35,000 or less. Overview of Debt Collection Process Creditor is unable to collect money owing and refers the matter to a lawyer or paralegal. Paralegals are restricted by the LSO and are only able to represent in specific matters.
Collection agents act on behalf of creditors to collect debt. If you are collecting debt, you must be registered under a collection agency. oThese agencies are regulated under theCollection and Debt Settlement Services Act Demand letter is sent out by a collection agent, lawyer, or paralegal giving the debtor 10 days to pay Asset and ID searches of debtors are carried out Amount owing is calculated prior to commencing an action At the expiry of 10 days, the pleadings are prepared, default judgement is signed against the debtor Once judgement is obtained, proceedings are enforced and judgment is commenced File a writ of execution, issue garnishment notices and/or conduct an examination of judgement debtor to determine the debtor's ability to pay Paralegals' role in debt collection Paralegals are restricted by LSO and are only able to represent in the following courts: OCJ, provincial offences court OCJ, criminal court on summary conviction offences where max prison sentence does not exceed 2 years Small Claims Court, where an action for damages or the return of property valued at $35,000 or less can be heard Tribunals where representation by an agent or non-lawyer is permitted Collection agents - Act on behalf of the creditors, Debt settlement service providers act on behalf of debtors In order to register as a collection agency, applicants must be 18 years or older, be a Canadian Citizen or PR oAll monies collected by the agency are deemed to be in trust for the creditor in accordance with the collection contract Catch 22- complying with the collection and debt settlement service act oSpecifies that a paralegal cannot have collections in practice unless they have two years of experience in collection practice Collection and Debt Settlement Services Act Governs debt settlement service providers Sets out disclosure requirements, establish advertising restrictions and impose a fee cap for debt Prevents abuse of debtors by those who engage in collection work and ensure that creditors who use agencies are paid what they are entitled to Offers debtors using debt settlement services some protection by requiring disclosure of the conditions of debt settlement offers, allowing them to compare differing proposals Also mandates a 10-day cooling off period during which time the debtor may cancel service agreements Collection agency is prohibited from the following (non-exhaustive list - for others see p.7/8)
Attempting to collect payment without having sent a notice to the debtor Phoning the debtor before the 6th day after mailing the above-mentioned notice Commencing proceedings without first giving notice to the debtor of its intention to sue Threatening or commencing proceedings or other collection activity without written authorization Continuing to contact a debtor when the debtor (lawyer or paralegal) has sent a registered letter stating that they are disputing the debt and directing the collector to go to court The Collection and Debt Settlement Services Act If doing more than occasional collection work, a paralegal must register under the ACT Paralegals are not permitted to send demand letter prior to litigation; however, they can a paralegal letter to the debtor A creditor, before commencing any action, must send the debtor a notice for payment to creditor A demand letter can be sent out by a collection agent, lawyer or paralegal giving 10 days for payment CDSSA sets out settlement proposal disclosure requirements, restrictions on advertising, a 10-day cooling off period, and a limit on fees that can be charged for services Collection agencies are prohibited from attempting to collect without giving notice to Debtor Payment Customary business arrangement on the sale of goods and services is to offer payment terms of "next 30 days" - the debtor has 30 days including he date of invoice, to pay the invoiced amount without having to pay interest, and often with a discount of 5-10% on the invoiced amount to encourage prompt payment oInvoices usually start on the 31st day, ointerest (usually 1-2%) accrues per month (works out to be 12-14% per year) Creditors and some lawyers assume that if there is provision for interest in the invoice, the creditor is legally entitled to payment. Rare but unless the debtor specifically agreed to the interest provision at the time of sale or extension of credit, simply including it on an invoice does not make interest an enforceable part of the contract NOTE: if interest is payable on terms of less than a year (ex. Daily, weekly, bi-weekly, etc.) the contract must clearly outline the yearly rate interest. oIf equivalent annual interest rate is not set out, s.4 Interest Act sets out that interest is limited to 5% or less per year The creditor should obtain information of the debtor and make them sign a contract setting out the terms of repayment including interest Full legal name Driver's license Asset Debt Banking information If consented to credit bureau search and release of information (Personal Information Protection and Electronic Document Act)