The Collection Agency Legal Department - Fact or Myth? Part III: Your Day In Court

Let’s start out with an ugly truth from inside the collection agency – most people don’t get their day in court.

Everyone pictures a Perry Mason television episode, with courtroom drama and witnesses and cross examination. It doesn’t really work that way, specifically in Small Claims Court in Ontario.

Firstly, 90% of defendants that my agency has personally undertaken court action against never file a defense. That means default judgment is achieved, and wages are garnished. That’s usually when I finally hear from the consumer. But it's really too late at that point.

So, let’s assume the consumer did file a defense. What happens then? Is there a trial. Well, not at first.

If a defense is filed, the matter is set down for a Settlement Conference. This is a meeting at the court with a court referee (usually a deputy judge) and the Plaintiff and Defendant to sit down and discuss the case. Formally, it’s to narrow the issue if it goes to trial, seeing which points both parties can agree to. However, the realistic main thrust is to settle the claim through compromise on both sides. The court referee will strongly encourage settlement so the matter will not go to trial. However, any negotiations that take place in the settlement conference are off the record, and nothing presented informally in the conference will be used in the trial, if there is one.

If the matter isn’t resolved in the Settlement Conference, the matter will then go to trial. You will receive a trial date, and will be expected to argue your case before the judge – this may only be a 5-15 minute presentation. You can’t present any evidence that was not in the statement of claim or defense (unless the other side agrees), so there is very little last minute drama to be had. You can have witnesses, but again, you shouldn’t be bringing them unless they are specifically named in the statement of claim or the defense.

Ultimately, the judge does not care about you or the creditor, they just want to see the matter resolved. They are not interested in emotion, long-winded presentations, or witnesses. Often I have seen judges short-tempered because people are hot-headed, expect an undue amount of time, or are not interested in settling the matter. I have even seen a case summarily thrown out by a judge because both sides took a hard-line stance – no one won there.

If you are going to appear in court, be brief, respectful, include everything in your defense ahead of time, and be prepared to compromise.

This is obviously a brief, simplistic look at the small claims court process. Be aware that this three-article series is not meant to cover every possible contingency, but to give an overview of what to expect from the creditor's viewpoint.

The Collection Agency Legal Department – Fact or Myth? Part II: It’s The End of the Line!

So, continuing in this series, let’s assume that legal action is feasible, and someone on the phone is telling you that your wages will be garnished, your bank accounts seized, you will be pulled in front of the court to reveal all your financial assets, or a lien will be placed on your house …

If there’s a judgment in place already, all these things can (and likely will) happen. If someone has a judgment against you, they have a fair amount of power. But before any of these things can happen, a judgment needs to be acquired.

First, if legal action is going to happen, a Statement of Claim needs to be served on you. This Claim will detail how much you owe, and give supporting documentation proving how the debt is owed. This will usually include a contract, invoice, or payment history on account. Now, this Claim can be served on you in a number of ways – the most common are by mail, by registered mail, delivery to your house, or in person.

Once you receive your claim, you have 20 days (possibly 30, depending how you were served) to file a defense. Filing a defense is not free – in Ontario there is a cost of $40, and the form can be found at the link below:

When you file a defense, you have a couple of options. You can try to defend yourself against the claim, and provide supporting evidence why you do not owe the amount. Remember that this is going before a judge, and they don’t know you nor do they care about any facts outside of this case, nor will they take favorably to any emotion presented in your defense, or later in court – if you have solid facts on why you do not owe this claim, you have to present it in a logical manner. Provide copies of any proof or supporting documents.

Another option on the defense is to admit to the amount, and offer payment terms. If you do so, there is a good chance the creditor will accept these terms, or if they do not, and push ahead to receive a judgment, the court will often support your proposed arrangements – as long as it is reasonable to the debt ($50 a month of $15,000 is not likely reasonable -- an amount slightly less than what you would be garnished is far more likely to be accepted).

The last option is to admit to a portion of the debt, holding the balance in dispute, and offer arrangements on the amount you agree to. Obviously if the creditor strongly feels you owe the complete amount, they may ignore your defense and push forward, but if you are trying to resolve things voluntarily there is a good chance the court will support your defense if things go further.

If you don’t file a defense, the creditor (or collection agency) can file for default judgment, and can start acting on it, as above. In my years of experience, 90% of the small claims court actions I undertook *never* had a defense filed, and the debtors were shocked when their wages were garnished – if you don’t file a defense, you do not get your imagined day in court to fight the claim. Stand warned.

As well, if a judgment is acquired, the creditor or collection agency can claim the original amount owed, plus the costs of filing the claim (likely another $150-250), and pre-judgment interest (interest accumulated from the time of the debt up to the date of judgment), and post-judgment interest (ongoing interest that will accumulate on the judgment until it is paid).

Our next segment will talk about your (potential) day in court and what can happen …

If someone is threatening you with pending legal action, understand that horrible things can’t happen over night. If they imply that they can, they may not be keeping in the spirit of the Collection Agencies Act. However, if someone is clear with you, and advises that they have permission to take legal action, and that a judgment can be acquired in the next 30 days, they are entirely correct, if they file a claim as above, and a defense isn’t filed.

Small Claims Court Forms - http://www.ontariocourtforms.on.ca/english/scc/

Small Claims Court Fees - http://www.e-laws.gov.on.ca/html/regs/english/elaws_regs_930432_e.htm

The Collection Agency Legal Department - Fact or Myth? Part I: Should I Be Worried?

So, let’s say you receive a call from a collection agency’s ‘legal department’, or a collection agent threatens to take legal action against you for an unpaid debt.

Honestly speaking, unless you owe over $1000 for a debt, it is cost-prohibitive to take legal action against you. In Ontario, to issue a claim, have it properly served, get default judgment, and then execute on it via a garnishment, the legal costs will be approximately $300. So unless your debt is significant, the cost of securing a judgment outweighs the amount owed.

That being said, I have had a number of clients that demanded I take legal action on their $400 file, and I’ve seen $10,000 accounts that simply aren’t worth the cost of going down the legal road, because the debtor is already being garnished, is unemployed, or the like. Now with the 2002 Limitations Act in Ontario, a lot of creditors are getting judgments just to secure their debt beyond the two year mark.

Many clients will have judgments prior to listing their account with a collection agency. Any order by the Ontario Housing Rental Tribunal can be transferred to the small claims court for a small fee and then acted on (with a wage garnishment, for example).

For a collection agency to threaten to take legal action, they must have permission from the client to potentially take that action. Many agencies have contracts with their clientele that either allow blanket legal action, or the ability to request legal action on a file. But again, that will cost someone (either the agency or the creditor) $300+ in legal fees.

So, the short answer to part one of this article is: if you are being threatened with legal action over an $80 video rental account, no, you shouldn’t be worried. It's ludicrous (and likely illegal) for anyone to suggest you are going to court over $80. That being said, if you owe a significant four-figure amount of money to a creditor, and the agency knows you are gainfully employed or have liquid assets, the odds of legal action go up.