Canadian Debt Collection Law

Canadian Debt Collection Law - Credit Bureaus

Effective debt collection starts with being careful to whom debt is extended.

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 two major credit bureaus: Equifax Canada 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:

  • The Act applies only to consumer transactions.
  • 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.
  • 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.
  • 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 report.

    Canadian Debt Collection Law - 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.


    Canadian Debt Collection Law - 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:

    • Mortgage

      Foreclosure 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.

    Canadian Debt Collection Law - 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.


    Canadian Debt Collection Law - 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.


    Canadian Debt Collection Law - Unsecured Creditors

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

    • Dunning 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.
    • Seeking 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.

      The BC small claims limit in now set at $35,000.

      Small claims under $5,000 can be submitted to B.C.’s online Civil Resolution Tribunal (CRT). With an emphasis on mediation and negotiation, the CRT allows British Columbians to submit claims from their laptop or smartphone, at any time of day, and work with a trained facilitator to arrive at a resolution. Start to finish, the process costs a few hundred dollars at most and aims to be resolved in at 60 to 90 days.

    • Realizing on a judgement can be done by garnisheeing a bank account or seizing assets, usually with the services of a bailif


    Canadian Debt Collection Law - 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.


    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.



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