Legal Final Demands

Last week, I met with an enterprising young law clerk, and we were speaking about the credit and collection business. In that discussion, the issue of legal final demands came up – he told me his law firm provides demand letters to a national client, and is charging in excess of $300 per letter! They also charged an additional substantial contingency rate based on collections.  This is a common service offered to creditors, but it is important to know the strengths and drawbacks in such a collection program.


Legal letters have been a part of the collection industry for many, many years. There are many law firms well known for their legal demand letters within the industry. One of the more prolific service providers in the past was lawyer Mark Silverthorn, who in recent years has changed his clientele, and now acts as a consumer advocate.


Law firms are not required to be licensed in Ontario to perform collection activities (although some other provinces do require registration under their specific collection agency legislation), and I have no issue with these law firms participating in our industry, but I am constantly in amazement that there is such a fee charged (and paid!) for a letter like this. While an amount in excess of $300 is one of the higher amounts I have heard of, fees of $75 to $150 per letter are far more common, and creditors should understand that they are paying an excessive amount.


However, the letter on its own is insufficient as a collection tool – it requires a support structure to be truly effective.



The Power of the Legal Final Demand

A letter with the trade dress of a lawyer’s office will certainly create a sense of urgency, especially when matched with balances in excess of $2000 owed, where legal action, specifically a small claims court action, is viable.

However, there are a few caveats when using such a letter.

• Most lawyers will endorse their name or their firm’s name to a letter, but will direct the generation of such letters, or the inbound calls from these letters, to a junior clerk or paralegal. It is crucial that the letter is supported by knowledgeable staff, when agitated debtors call the letter imprinted on the letter.

• Many letters and their presentation or layout undermine their authority or urgency by lacking a signature, contact name, contact number, or include odd elements such as an unprofessional bar code or reference number. Clients purchasing a legal final demand letter service should certainly review the content of letters being sent out in representation of their company, and compare them to what other legal firms or collection agencies may provide.

• Some letters can take the form of a draft statement of claim – this is definitely something creditors wish to be aware of, and avoid. Until recently, the use of a draft statement of claim, specifically a prepared but unfiled claim being sent to a debtor to give them the impression a legal claim was forthcoming, was prohibited under the Debt Collectors Act. This Act was repealed on March 30th, 2011, but the Ontario Registrar for the Collection Agencies Act has on more than one occasion reprimanded agencies from having retained lawyers sending these out, this tactic draws a great deal of media attention, and more than one law firm has been investigated by the Upper Canada Law Society for issuing these documents.

• Many letters contain wording overstep the bounds allowed by the client or are in violation of the Collection Agencies Act. In some cases, the law firm’s wording on the letter can cause a frustration of claim, preventing actual legal action at a later point in time.


What Does The Legal Letter Achieve?

Creating a powerful and professional legal final demand with the right software and printing equipment is easily done, and can merge in consumer information, and even calculations of interest, payment deadlines, and other specific information.Ideally, the letter indicates to the consumer (or consumer company) that a lawyer’s services are available to address an unresolved claim, if necessary. Ideally, the letter should result in at least a 10%-20% liquidation of receivables, before any telephone contact is commenced. This can be a very efficient method of collections.

Ideally, a proper telephone work plan that follows a legal final demand will supplement and support such a letter being sent out, and create a sense of urgency and consequence for the consumer. Together with the letter, a strong liquidation rate can be achieved.


What If They Don’t Pay?

It is crucial that the creditor know what is being sent out on their behalf, and that these letters are not hollow threats. If a consumer does owe in excess of $2,000, payment arrangements are not achieved, and they are discovered to be gainfully employed, legal action should be considered, and undertaken.This is where a third party collection agency working in conjunction with a law firm can best achieve results – most agencies maintain excellent call support software and collection staff to schedule follow up calls and investigation on files if the legal final demand is not successful. As well, the collection agency can affect the consumer’s credit rating with a registered item if legal action is not currently viable.

If the consumer is not employed, or does not have assets that can be attached to a judgment, the wording of the legal letter should allow for the creditor’s current position to not be compromised, and the file should be watched carefully for future employment, regular contact should be made with the consumer, and the sense of urgency should be maintained.


Conclusion

If you have questions regarding legal final demands, or you are currently employing these letters, feel free to contact myself at Kingston Data and Credit. Our office has experience with legal final demands, and produces them in conjunction with Rabideau Law. We have found that a tailored collection program in support of a legal final demand letter can produce high liquidation rates, and present a strong image on the creditor’s behalf. For our rates and program information, feel free to contact ourselves.

Blair Wettlaufer
Kingston Data and Credit
Cambridge, Ontario
226-444-5695

How Long Is A Debt Good For? Part III: Saskatchewan

(There was no article posted last week – Kingston Data and Credit has had the good fortune of being very busy this past two weeks. To the people who visited Receivable/Accounts last week looking for new content, thank you for your patience).

Many questions often arise about the age of a debt, and what can be done, especially when it comes to bad debt write-off, collections, the credit bureau, or legal action. Each Province has its own statute of limitation on legal action. These vary from province to province.
As the next article in our series, we will address the province of Saskatchewan.




The Limitations Act of Saskatchewan

In Saskatchewan, the Limitations Act has been updated fairly recently (as of this writing, it was updated in 2007).

As many other provinces, it states “no proceedings shall be commenced with respect to a claim after two years from the day on which the claim is discovered”. There is some definition of discovering the debt, but there is an ultimate limitation period of 15 years from the date of incurring the debt.

Judgments are stated to be actionable for ten years from the date of judgment or order.
Similar to Alberta, the provincial limitation is suspended for the period that the claimant (creditor) is disabled, either physically or mentally. There is also a unique clause that the limitation period does not apply for the period a claimant (creditor) is a minor. There is some language dealing with disabled persons or minors with agents, guardians, or powers of attorney that deals with specific circumstances.

As with other provinces, the date of limitation can be “reset” by a payment or acknowledgement of the debt. An acknowledgement of the debt can be a written refusal to pay, or not even address or offer payment. The acknowledgement must be in writing by the debtor or their agent, and the acknowledgement allowing a reset of the limitations period must be made within the original limitation period – thus, it appears as an example, that an acknowledgement of a debt six years after the debt was incurred is not sufficient to reset the limitation period – this effectively creates an absolute limitation period of four years for a non-judgment debt not dealing with other oddities involved in the matter.

There are some exceptions, and some circumstances that debts have no limitation, but they are specific, and bear reviewing the actual Limitations Act.\

Here is the link to the actual provincial act:

http://www.justice.gov.sk.ca/Limitations-Act




The Credit Bureau

Looking separately at the provincial rules in Saskatchewan, this is addressed in the Credit Reporting Act. Information regarding bankruptcies or judgments are kept for a period of six years (although there is an exception where the report of the judgment can be extended). A bureau can also include a debt or “adverse information” for a period of six years, or include older debts with the most recent payment within the last six years.

The Credit Reporting Act can be found here:

http://www.justice.gov.sk.ca/Credit-Reporting-Act




Who Can Look At A Credit Bureau?

In Saskatchewan, or any other province, there are rules on who can look at a credit bureau. Every person is entitled to look at their own credit bureau, and can in most cases sign permission to a company to look at their credit bureau.

In certain cases, unauthorized parties can look at a credit bureau. Any party attempting to collect on a debt can look at a credit bureau without the consumer’s knowledge or authorization. Any law enforcement agency can look at a bureau for the purpose of investigating or prosecuting a party, and the court can order a credit bureau can be given to another party.

Of course, the credit bureau includes a history of hard inquiries on the bureau – a consumer or creditor can see who has been examining their credit bureau record.

The major credit reporting companies in Canada, of course, are Equifax Canada (http://www.equifax.ca/, 1-800-465-7166) and Trans Union Services (http://www.tuc.ca/, 1-800-663-9980).




Conclusion

I received an email last week – it asked about our missing article last week (sorry again), and it asked why our company, and why I personally am doing this series of articles. Why is the Chief Operating Officer of a third party collection agency putting an article out there talking about what a collection agency can’t do, what debts aren’t valid, and help the consumers?

Let me tell you why – if you go to Google, and search for consumer rights in Canada, you find debt settlement companies (who will help you for a price), consumer rights’ lawyers (who will help you for a price, paid by a retainer in advance), and a few angry consumer forums where horror stories are told about collection agencies and their mistreatment of the average person. And meanwhile, the collection agencies are silent.

No one likes being told they owe money. Yet hundreds of collection agencies exist in Canada, and impact millions of Canadians – this is an essential part of the credit cycle, and deals with hundreds of millions of dollars every month. I have been in the field of credit and collections for over twenty years. And I don’t believe silence by the credit industry is necessary.

Consumers should be given the knowledge of what consequences can happen. Be it affecting their credit rating, or being subject to legal action, I believe this knowledge should be given to consumers, and then they should be given a fair choice to cooperatively submit payment, or live with the real and honest consequences. Collection agencies should be in the business of consequences, not intimidation or deception.

As always, if you have any questions regarding the pursuit of receivables, and the legal recourse of the creditor to secure their debts, you are certainly welcome to contact myself.

Blair Wettlaufer
Kingston Data and Credit
Cambridge, Ontario
226-444-5695
http://www.kingstondc.com/
bwettlaufer@kingstondc.com

How Long Is A Debt Good For? Part II: Alberta

Many questions often arise about the age of a debt, and what can be done, especially when it comes to bad debt write-off, collections, the credit bureau, or legal action. Each Province has its own statute of limitation on legal action. These vary from province to province.

As the next article in our series, we will address the province of Alberta.


The Limitations Act of Alberta

Alberta’s Limitations Act (Revised Statutes of Alberta 2000, Chapter L-12) details what debts can be claimed with or without a judgment. 

On a basic claim of liability, it states that a debt is good for two years “after the date on which the claimant first knew, or in circumstances ought to have known” of the amount owed.  This allows two years for legal action.

There is also an absolute limit for a debt of “10 years after the claim arose”, negating a judgment after ten years if not enforced.

As with other provinces, the date of limitation can be “reset” by a payment or acknowledgement of the debt.  The Limitations Act is clear on the matter, stating that a payment must come from the debtor, an acknowledgement must be in writing, and signed by the debtor.  An interesting fact is that acknowledgement of a debt does not necessarily require a promise payment, and can eve include a refusal to pay.

Another interesting fact in the Act is that the limitation period is suspended if the creditor is a person under disability, for whatever period they are disabled.  Proof is on the creditor to prove the period of their disability, however.

For further information on the Limitations Act of Alberta, follow the link below

http://www.qp.alberta.ca/documents/Acts/L12.pdf

The Credit Bureau

The provincial laws that affect the credit bureau are the Fair Trading Act and the Credit and Personal Reports Regulation.  The limits outlined in these laws state that a credit report cannot include “unfavorable information about a debt is more than six years has elapsed since the date of last payment on that debt or the date the debt was incurred, whichever is later”.

Interestingly, while a judgment can be enforced for ten years, according to the Credit and Personal Reports Regulation, it cannot be listed on the credit bureau for “more than six years after the judgment was given, unless the creditor or creditor’s agent confirms the judgment remains unpaid in whole or in part, and the confirmation appears in the file”.

The provincial regulations also allow a consumer to add a statement of 100 words or less detailing why certain information is not accurate or complete, which must be included by the credit bureau in any report provided.

The Credit and Personal Reports Regulation can be found here:

http://www.canlii.org/en/ab/laws/regu/alta-reg-193-1999/latest/alta-reg-193-1999.html

And the Fair Trading Act is found at the following link:

http://www.qp.alberta.ca/documents/Acts/F02.pdf

Older Debts

Often creditors will continue to pursue a debtor on a debt older than six years. However, the creditor, debt buyer, or collection agency representing them generally has no legal recourse if the debtor refuses to pay. Many collection agencies seek to pursue on older debt, but this is a gray area that should be entered into carefully by both third parties and creditors. 

Note that as discussed above, the Limitations Act states if a debtor sends in a written refusal to pay, that can restart the option for legal action or registration to the credit bureau.


Bad Debt Write Off

When a company writes off accounts receivable amounts, it has no impact on whether it can be pursued or not. Small businesses often think it prevents them from collecting the account in the future, which is false – there is merely some bookkeeping to be done to account for the loss, and later recovery. If a debt has been written off, it is simply no longer counted on the balance sheet of the company as accounts receivable, which is an asset. The bad debt write-off removes it from accounts receivable. Should the funds be later recovered, it can be reflected as income upon remittance. For a complete explanation, consult with your accountant.


Student Loans

There is a special exception to student loans. As of July 8, 2008, Section 178 of the Canadian Bankruptcy and Insolvency Act was changed that affected all provinces, and states that student loans will not be discharged or forgiven through bankruptcy unless they file at least seven years from the date they ceased to be a part-time or full time student, unless they are granted a special exception by the Supreme Court in Bankruptcy. There are a number of fine details to the rules surrounding student loans, and would be a complex subject to be fully addressed in a separate blog article.


Conclusion

Limitations are an inevitability no matter what province you are in.  All creditors should have a plan on how to address their debts in a timely action.  I recently had a client list a file with our firm for legal action, with only two weeks remaining to file a claim – much scrambling was necessary.  Plan ahead, and decide a reasonable time line for enforcing your receivables.

Files should receive a final demand notice from your company no later than 180 days, and the ideal period would be 60 to 90 days.  Files should be assigned to a third party collection agency no later than 240 days, and the ideal period would be 120 days.  Legal action should be initiated, if necessary and the likelihood of garnishment or asset seizure is strong, no later than 18 months, but ideally by 360 days.

As always, if you have any questions regarding the pursuit of receivables, and the legal recourse of the creditor to secure their debts, you are certainly welcome to contact myself.

Blair Wettlaufer
Kingston Data and Credit
Cambridge, Ontario
226-444-5695
http://www.kingstondc.com/

bwettlaufer@kingstondc.com

How Long Is A Debt Good For? -- Part I: British Columbia

Many questions often arise about the age of a debt, and what can be done, especially when it comes to bad debt write-off, collections, the credit bureau, or legal action.  Each Province has its own statute of limitation on legal action.  These vary from province to province.

This week, we will look at British Columbia. 

The Limitations Act

The Limitations Act details what the limitation is on claiming funds owed.  This allows a period of six years for undertaking legal action from the delinquency or acknowledgement of the debt.  This law is available online at the following location:

http://www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/00_96266_01

 

UPDATE: The British Columbia government has announced that as of June 1, 2013, their new Limitation Act comes into effect.  The basic limitation period for civil claims will be two years going forward, dating from “discovery of the claim”. An ultimate limitation period of 15 years will be in place as well. Any claims with debts incurred prior to June 1, 2013 may still fall under the old Limitation Act. Discovery has it’s own interesting terminology, and is not as simple as the language of some other provinces.

In British Columbia, a judgment is valid for ten years, as per their Limitations Act (linked above).  A judgment for possession of land, a debt owed from collateral, or other very specific circumstances, the Limitations Act states there is no limit to recourse, and is laid out within the law.

The Credit Bureau

Notwithstanding legal action, there is a separate limitation enforced by provincial law on what can be placed on the credit bureau.

The Limitation of a non-secured debt is addressed in Section 3 (5) of the BC Limitation Act, and sets six years as the limit for debt.  As with other provinces, the Limitations Act states with acknowledgement of the right of the creditor, or a partial payment, the time limit is reset.

In British Columbia that other law that governs reporting to the credit bureau is the Personal Information Protection Act:

http://www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/00_03063_01

Older Debts

Often creditors will continue to pursue a debtor on a debt older than six years.  However, the creditor, debt buyer, or collection agency representing them generally has no legal recourse if the debtor refuses to pay.  Many collection agencies seek to pursue on older debt, but this is a gray area that should be entered into carefully by both third parties and creditors.

Bad Debt Write Off

When a company writes off accounts receivable amounts, it has no impact on whether it can be pursued or not.  Small businesses often think it prevents them from collecting the account in the future, which is false – there is merely some bookkeeping to be done to account for the loss, and later recovery.  If a debt has been written off, it is simply no longer counted on the balance sheet of the company as accounts receivable, which is an asset.  The bad debt write-off removes it from accounts receivable.  Should the funds be later recovered, it can be reflected as income upon remittance.  For a complete explanation, consult with your accountant.

Student Loans

There is a special exception to student loans.  As of July 8, 2008, Section  178 of the Canadian Bankruptcy and Insolvency Act was changed that affected all provinces, and states that student loans will not be discharged or forgiven through bankruptcy unless they file at least seven years from the date they ceased to be a part-time or full time student, unless they are granted a special exception by the Supreme Court in Bankruptcy.  There are a number of fine details to the rules surrounding student loans, and would be a complex subject to be fully addressed in a separate blog article.

Conclusion

I believe that the older a debt is, the smaller the chances are of recovery.  If I were to advise a creditor on the most effective time frame for collections, it would be up to four years old.  Either legal action, or the pending action of listing on the credit bureau, or the after-effects of having reported the item to the credit bureau are greatest in this time frame.  Depending on the age of the account, and what action has occurred prior to that date to recover the file, a reasonable expectation of liquidation can be set.

As always, if you have any questions regarding the pursuit of receivables, and the legal recourse of the creditor to secure their debts, you are certainly welcome to contact myself.

Blair Wettlaufer
Kingston Data and Credit
Cambridge, Ontario
226-444-5695
http://www.kingstondc.com/

bwettlaufer@kingstondc.com

Credit Bureau or Small Claims Court?

Ultimately, a collection agency is a toothless beast without consequences for a debtor owing a balance.  There is the stigma of receiving calls and letters, or the soft leverage of compound interest or denial of service by the client, but the major consequences a third party agency can bring to bear are listing a debt on the credit bureau, or undertaking legal action.

On January 1^st, 2004, the Limitations Act in Ontario was updated, impacting many different laws across the board.  Most significantly was the change to a small claims or general court actions, changing the maximum time to take legal action to two years from delinquency or acknowledgement of the debt.   

The Consumer Reporting Act was not changed, and still allows an outstanding amount to be recorded on a person or corporate credit bureau profile for a maximum of seven years.

A court judgment may secure a balance for an extended period of time, but the point isn’t to acquire an expensive court document, it’s to enforce payment.  To acquire a default judgment without a defense and file a garnishment will cost at minimum $400.  If a defense is filed or there are complications with serving the statement of claim, or a debtor examination is necessary to enforce judgment, this cost can easily climb to $1200.  You can certainly ask for costs with your judgment, but often a judge will only grant a portion of this expense.  And this expense can only be recovered if you are able to satisfy your judgment.

Through a third party agency, listing an item on the credit bureau costs nothing.  As long as accurate information about the debtor or company is provided, the listing will be matched to the correct credit bureau profile. 

What Action Is Best

If the owing balance is under $3000, the credit bureau is your most effective and cost-efficient manner of recovering your funds in the long-term.  If your contract or invoice allows interest, all the better.

If your account is over $3000, and you have a definite source for garnishment, then court action may be worthwhile, with immediate and tangible results.  But if the employment is temporary or transient, the odds of a defense being filed are high, or the contract or service agreement to back up the statement of claim is weak, then perhaps court action may be a risk to your company, throwing good money after bad debt.

In my experience, I have found the credit bureau to be a more globally effective tool for enforcing debts in the long run.  Court action certainly has its’ place, but on the grand scheme of things, in this current day and age a good percentage of consumers are likely to require credit within a period of seven years.  We had one client that requested our office to list their significant number of files (approximately 18,000 files) on the credit bureau for consumer debt, and we measured the return over an extended period of time.  Here are the results we tracked:

Time	Repayment %	Repayment with Interest %
< 3 months	0.1%	0.1%
3 months – 1 year	1%	1.1%
1 year – 2 years	2%	2.3%
2 years – 3 years	3%	3.5%
3 years – 4 years	3.7%	4.4%
4 years – 5 years	4.2%	5.1%
5 years – 6 years	4.4%	5.4%
6 years – 7 years	4.5%	5.8%

This client’s overall liquidation with our agency was 21%, which was higher than they had experienced with their previous agency … nearly a third of their recoveries came from the results credit bureau action.  The 5.8% recovery represented almost half a million dollars.

Summary

The right leverage for the right debtor is imperative.  If you need advice on your outstanding receivables, or you are not seeing results from your existing collection agency after a period of 90 days, odds are they are not reporting your files to the credit bureau, and should be.  Feel free to contact my office at Kingston Data and Credit, at my direct line of 226-444-5695 to discuss the right options for your collection accounts.

Blair Wettlaufer

A Landlord's Dilemma

I have recently received an email from my blog email from a landlord who has an outstanding account. They have successfully received an order from the Ontario Housing and Rent Tribunal, in the amount of thousands of dollars, but have no idea how to execute on it.

Often landlord’s have problem tenants, and the Tribunal is user-friendly enough to assist them in getting a Tribunal Order, but not helpful enough to execute on it.

What To Do With a Tribunal Order

If you have a tenant that has not paid their rent, and you wish to evict them and receive an order for payment, I recommend the following PDF document: http://www.ontla.on.ca/library/repository/mon/3000/10303625.pdf

When a tenant has not paid their rent, and a successful Tribunal Order is received, it will include a deadline to either vacate the premises or pay an outstanding amount. This amount will be broken into two sections – the arrears of rent, and the “per diem” that can be charged for each day past the order until the unit is vacated.

Obviously, if the tenant pays their arrears, they need not vacate the unit, and may remain. If they do not pay the Order, they must leave the premises, and are in default of the order to pay – which can be transferred to a judgment.

In the old days, you needed to get a court order to evict a tenant, and then go back to court for your judgment on arrears – with the formation of the Ontario Housing and Rental Tribunal, it is all done in one process.

Getting a Judgment

With a certified true copy of the Tribunal Order and a Certificate of Judgment form in the local small claims court, the Order can be transferred to a judgment, and include pre- and post-judgment interest on the total sum of the Order, as determined by the court. They will assign the matter a small claims court number that will be used henceforth.

What Good Is A Judgment?

With this judgment, you can now execute on the matter through a garnishment order, writ of seizure and sale, and/or a notice of examination. You can do this at the same time as filing the Certificate of Judgment, if you have the paperwork filled out and ready to go.

As well, if you have a judgment, the matter becomes public knowledge. Whether you are a landlord or a collection agency, you can now speak to a payroll department about garnishing someone’s wages. Or go into the debtor’s local bank and seize their account if you have the information.

Summary

If you feel capable of executing on these matters yourself, small claims court forms can be found here: http://www.ontariocourtforms.on.ca/english/scc/. A court clerk cannot give you advice on your claim, however, they will point out any mistakes you might make in filling out the form, as long as you are polite and do not overly waste their time. To properly execute a Tribunal Order through a garnishment, you are looking at approximately $200 in costs for court fees and process serving.

As I told the person inquiring earlier, if you wish to retain a paralegal or collection agency to act on your tribunal order, many are very experienced in these matters, and may be able to collect the account without resorting to court fees. However, many will charge hourly rates or an exceedingly high commission rate. If you need assistance finding representation, please feel free to give me a call at my office, at 226-444-5695.

Blair Wettlaufer

Kingston Data and Credit

Cambridge, Ontario

226-444-5695