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Out of Court Debt Collection

There are a number of ways that a creditor can collect on a debt without taking the debtor to court. A creditor’s out-of-court options can depend on the terms of the agreement and the type of debt.

Default Charges

One of the terms of a credit agreement can be that the debtor has to pay default charges if payments are not made on time. These kinds of charges are sometimes called late payment charges. However, under Saskatchewan law these charges can only be for reasonable legal costs to recover the debt. If the debt is a secured debt the creditor can charge reasonable costs, including legal costs, they incurred to take possession of the asset used to secure the debt. The creditor can also charge a reasonable amount for costs incurred because the debtor paid with a cheque that bounced.

Service Refusal

A creditor may refuse to provide any further services after missed payments. For example, creditors such as utility or telephone companies have the authority to cut off services when payments have been missed.

Accelerated Payments

A creditor can demand that you repay the whole amount borrowed if you do not make scheduled payments, but only if the agreement contains an "acceleration clause." An acceleration clause states that the whole debt becomes due if payments are not made as agreed upon. Creditors must serve you with written notice that you have defaulted on a payment if they want to accelerate the loan. Payment on the loan cannot be accelerated until at least ten days after this notice was sent.

A secured creditor must serve a notice on you if they intend to repossess certain articles. These articles include household appliances such as a washing machine, a stove, a heater, a sewing machine, a refrigerator or a freezer.

Repossession of Secured Goods

When you miss one or more payments or break other promises in a security agreement, a secured creditor may repossess the goods that you gave as security for the loan. The secured creditor can seize the goods personally or can hire a private bailiff. The person seizing the goods must have the debtor's permission to enter the debtor's home. If the debtor allows the creditor or private bailiff into the home, that person can repossess only those goods in the home that were given as security.

No one can enter your home without your permission. Using force to enter someone's home is a criminal offence. A secured creditor can, however, repossess security outside your home on the property without your permission, such as a car parked in the driveway. If you see the secured creditor or private bailiff repossessing something on your property, you can ask them to leave. If they do not leave when asked to do so, they are trespassing. You may want to refuse entry, at least temporarily, to have time to get legal or financial help. In some security agreements, the debtor gives written permission to the creditor or creditor's agent to enter onto the property. A creditor's agent is anyone acting for the creditor such as a private bailiff. The problem will not go away just because you refuse to allow the creditor in the door. The secured creditor can get a court order requiring you to give up the goods.

Depending on the agreement, the debt can be wiped out after the creditor repossesses and sells the goods. This means the creditor cannot get more money from you even if the creditor sells the goods for less than the amount owing under the agreement. On the other hand, there are situations where secured creditors can seize and sell the goods and go back to you for any amount still owing. If the item sells for more than the amount of the debt, any money left over can go to you but, in some cases, other secured creditors will have first claim on any surplus.

An unsecured creditor cannot repossess goods. This type of creditor must first sue you in court and get a judgment against you.

Liens

A lien is a right that a creditor has in the property of another person, to help secure payment of money owing to the creditor.

One of the most common kinds of lien is called a Builder's Lien. This arises when contractors, workers or other suppliers help to construct a new building, renovate a property or otherwise improve land. Because they have made an improvement to the land or buildings, they can claim a lien against the property. Generally, the property owner will need to clear up any liens before the land can be sold or mortgaged. In Saskatchewan, this type of lien is dealt with under The Builders' Liens Act.

The Commercial Liens Act deals with most other types of liens. A person who provides labour or materials to repair or improve goods or who stores or transports goods has a commercial lien. The purpose of the lien is to help secure payment to the person who provided the service or made the improvement to the item.

For a lien claim to be enforceable, the person who asks for the services (the debtor) must have an interest in the goods, be in possession of the goods or be legally entitled to possess the goods that are subject to the lien. A lien only secures payment of the amount that the person who asked for the service agreed to pay. It cannot secure payment of any other debt owing to the creditor. If no agreement was made on the amount to be paid, the lien is for the fair market value of the services provided by the creditor. If the service provider chooses to terminate the contract before it is completed, they cannot claim a lien on the goods.

To be able to enforce a commercial lien, a creditor needs to either keep possession of the goods or have the person who asks for the service sign a written statement. The written statement must authorize the service or acknowledge an obligation to pay for the service. The statement must describe the goods that are subject to any lien.

If the person who asked for the service has signed an authorization or acknowledgement, then the creditor can give up possession of the goods and not lose the lien. However, to protect the lien claim, the creditor must register it with the Personal Property Registry. This must be done within 15 days of giving up possession of the goods, or the creditor risks losing priority of the lien claim to other creditors or claimants.

If the bill is not paid within 30 days of the due date, the creditor may have the right to sell the goods to pay the debt owing for services. If a lien claimant has given up possession of the goods, only the Sheriff can seize the goods back, to deliver to the lien claimant.

Collection Agencies

When a creditor has not been able to collect on a debt, one option is to hire a collection agency. The collection agency agrees to try and collect the debt on behalf of the creditor, in return for a fee – usually a percentage of whatever they receive from the person who owes the money.

However, a collection agent is just that – an agent of the creditor. The agency cannot do anything more than the creditor could do themselves. A collection agency can write, telephone, contact you in person or possibly begin a court claim on behalf of a creditor. A collection agency cannot seize your bank accounts, your salary or any of your assets without first going to court, just like a creditor would have to do.

Going to a collection agency is not a short-cut for the creditor to get their money. In fact, the law sets out limits as to what a collection agency is allowed to do when they try to collect on a debt.

First of all, every collection agency must be licensed to do business in Saskatchewan. You have a right to know the name of the person who has called you, as well as the name of the collection agency that he or she works for. This will help you to identify a legitimate collection agency, and to keep proper records in case you need to make a complaint about the agent’s behaviour.

By law, you have a right to not be contacted on a Sunday or a holiday at any time, or on any other day between the hours of 9:00 p.m. and 8:00 a.m.

Any contact that you do receive cannot be so frequent or hostile as to be considered harassment or intimidation. Collection agencies cannot give or threaten to give any information to your employer or the employer of a family member that would adversely affect your or your family member’s employment or employment opportunities. As well, a collection agency cannot give anyone false or misleading information that could be damaging you or your family. And, they cannot demand money over and above what you owe the creditor.

If you feel a collection agent is harassing you, contact the FCAA Consumer Protection Division at 1-877-880-5550 or consumerprotection@gov.sk.ca.

Remember, the collection agency does not have any more powers than the creditor, and usually, the collection agency is paid on a commission basis. Because of this, some collection agents may be tempted to “cross the line” in the pressure that they apply to try and get a debtor to pay. If that happens, they are breaking the law and, if convicted, they could face fines and possibly the loss of their license.

Income Tax Debt

Once you have been assessed as owing income tax, and either do not dispute it or have run out of appeals, the Canada Revenue Agency (CRA) expects you to make prompt payment of the debt. If you do not they can take a number of measures to collect the amount owing. These include...

  • notices or correspondence offering an opportunity to pay, and warning of legal action if payment is not made
  • garnisheeing wages, bank accounts, some Registered Retirement Savings Plans and employment insurance
  • asking the Sheriff to seize some of your goods
  • registering a lien against your house or other land that you own

Unlike other creditors, the CRA does not need a court judgment to garnishee your money or seize and sell some of your goods.

You may be able to arrange a payment plan with the CRA. If you are not able to borrow the money or otherwise arrange your finances, they may accept payments over time to settle the debt. In some instances, they may waive any interest on the debt if you can convince them that it would be the only way for you to pay the taxes within a reasonable period of time.

Property Tax Debt

If you have overdue taxes on your land, the municipality that assessed the taxes can register a lien against the property. In order to remove the lien against your property, which must be done if you want to sell or mortgage the property, you would have to pay the outstanding taxes. Eventually, if taxes are outstanding for a lengthy period of time, the municipality can apply to have title transferred to its name.

Maintenance Arrears

Maintenance arrears are a special form of debt. Maintenance or arrears will be paid before any other debts in situations where several creditors try to collect from a debtor who is in financial trouble. Maintenance payments and arrears are not wiped out or reduced if a debtor declares bankruptcy. Only a judge can reduce or cancel maintenance payments or arrears.

Maintenance payments are the one kind of debt where failure to pay can result in a jail sentence. The Maintenance Enforcement Office in Regina can collect maintenance payments for the spouse or parent. For detailed information on support orders and agreements visit Family Law Saskatchewan.

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