Collection Agency Insider – Mark Silverthorn
You might be receiving collection calls from your creditor, a collection agency, or some company that has purchased your outstanding account. You might be receiving letters from lawyers threatening to sue you. You might be very anxious, depressed, and experiencing problems sleeping because you are concerned that you are going to be sued. In fact, there are nine key reasons why you might never be sued.
Over a twelve year period, between 1995 and 2007, I worked as a lawyer for four of the ten largest collection agencies operating in Canada. Over this period I dealt with collectors, collection supervisors, collection managers, senior executives, and collection agency owners at many of the largest collection agencies in Canada. For several years, I managed the Legal Department at some of the largest collection agencies in Canada. Based upon this experience, as well as the months I spent researching my book, The Wolf At The Door: What To Do When Collection Agencies Come Calling, published by McClelland & Stewart, I have a good idea whether or not a debtor might be sued in connection with a particular account.
Please note that it is much easier to predict the behavior of a large creditor such as a bank or a credit card company. It much more difficult to predict the behavior of a small creditor such as your dentist, veterinarian, or your lawn care service. The observations in this blog do not apply to small creditors.
Your odds of being sued are slim within the first six months you stop making payments
During the first three to six months that your account has not been paid your creditor will typically contact you—both on the phone and in writing—requesting payment of your outstanding account. During this initial period, anywhere between three months and six months, the payment demands will be made from employees working for your creditor. At some point after your account is six months overdue your creditor might decide to do one of the following:
- Continue to attempt to collect the account using the creditor’s in-house collection staff
- Hire a collection agency to collect your account on a commission basis
- Sue you
- Sell your outstanding account to a debt buyer
Creditors typically cherry pick the accounts they want to sue and forward accounts to collection agencies that they don’t want to sue. If you are going to be sued then you are more likely to be sued by your creditor than a collection agency.
Collection agencies sue a very small percentage of consumer accounts
When I was researching my book, The Wolf At The Door, I recall speaking to some senior executives in the collection industry about the percentage of files that collection agencies attempt to collect that were actually sued. Based on these conversations I am very comfortable saying that collectively, collection agencies across Canada, only sue about one in 10,000 accounts that they attempt to collect.
It is helpful to think of a collection agency as a factory with raw material–hundreds of thousands of outstanding accounts it is attempting to collect. Collection agencies can be very profitable by collecting a significant amount of money from a relatively small percentage of these debtors by making collection calls and sending out written payment demands—two relatively inexpensive collection tactics. A collection agency that actually sued a substantial percentage of its files could easily go bankrupt because of the significant time, trouble, and expense associated with suing files. One might say that collection agencies pick the low-hanging fruit.
Creditors don’t like suing files unless they are reasonably confident of recovering monies from you
Creditors want to treat their portfolio of unpaid accounts as an asset and not as a liability. A creditor will never lose money hiring a collection agency to collect an account on a commission basis. As soon as the decision is made to sue a particular outstanding account then someone—either the creditor or the collection agent–is taking a financial risk of losing money because it will have to incur out-of-pocket expenses with no guarantee of ever recovering a penny from a debtor it has sued. If you owe more than $5,000 to a creditor and you own real property in your own name then you might be sued. Creditors, however, are often reluctant to sue people who do not own real estate because they cannot obtain a judgment against them and put a lien against a debtor’s real property which transforms the creditor into a secured creditor.
As long as you are receiving collection calls it is unlikely you are going to be sued
Creditors who are trying to collect monies from you will typically do one of two things. Firstly, they might have someone call you demanding payment of your outstanding account. Secondly, they might sue you in an attempt to recover monies from you. Creditors, however, rarely do both at the same time. If you are receiving collection calls and written collection notices from your creditor or a collection agency then chances are—at least in the short term—your creditor has decided not to sue you, but to attempt to collect monies from you by making payment demands.
Nine key reasons why your creditor might never sue you
Based upon my sixteen years of experience in the collection industry—12 years representing some of Canada’s largest collection agencies as well as four years representing consumers—I have identified nine key reasons why a creditor, or their authorized collection agent, might never sue you:
- Limitation period on your debt has expired
- Your creditor cannot find the paperwork to successfully sue you
- Your debt is too small
- It is simply not economical for your debtor to sue you
- You are judgment proof
- You are near-judgment proof
- You live outside Canada
- Your creditor might be concerned about adverse publicity if it were to sue you
- Your creditor or its collection agent might have engaged in misconduct when attempting to collect your debt
You might not be sued because your debt is too old
It is possible that your creditor might decide not to sue you because of the expiry of the limitation period in your province. The relevant limitation period or unsecured consumer debt is two years in British Columbia, Alberta, Saskatchewan, Ontario, and New Brunswick, three years in Quebec, and six years in the rest of Canada. Creditors, and their authorized collection agents, rarely sue an unsecured consumer debt after the expiry of the relevant limitation period.
You might not be sued because the necessary paperwork is missing
You might be surprised to learn that some large creditors often lose important documents concerning their clients. In fact, in many instances, if a creditor were to sue a debtor and the debtor were to file a defence, then the creditor might not be able to introduce satisfactory evidence to be successful at trial. A creditor might decide not to sue someone or to abandon a lawsuit after a debtor files a defence because of lack of necessary documentation to support a successful lawsuit. Creditors sometimes don’t sue people over unpaid accounts simply because they cannot find sufficient documentation to warrant the time, trouble, and expense of commencing a lawsuit.
You might not be sued because your debt is too small
Most large creditors will have a policy or guideline prohibiting the commencement of a lawsuit where an unpaid account is below a specific dollar amount. This is done as a cost-saving measure. The creditor does not want to waste administrative time, labour costs, and out-of-pocket expenses on small accounts because it is simply not cost effective to do so. At many large creditors this threshold might be somewhere in the $4,000 to $5,000 range. At other creditors this threshold might be closer to $10,000 or $15,000.
The fact that a bank or a credit card company might not sue outstanding accounts for less than $4,000 or $5,000 does not mean that they automatically sue accounts greater than these amounts. What it does mean is that large creditors in Canada—banks, credit card companies, utilities and large retailers—rarely sue someone who owes them less than $5,000. If you do owe a particular creditor more than $5,000 to $10,000 then your odds of being sued may increase substantially if you own real property in your own name.
You might not be sued because it is not economical for your creditor to sue you
An example will help illustrate this point. Bill Smith lives in Sackville, New Brunswick and he earns $60,000 a year as an administrator at Mount Allison University. He rents an apartment and he does not own any real estate in his own name. Nine months ago Bill stopped making payments on his bank VISA credit card and his outstanding balance is now $15,000. He also owes an additional $30,000 on several credit cards, personal loans, and lines of credit. Bill also owes $30,000 to his ex-wife in spousal support. Despite the fact that Bill Smith owes a significant amount of money on his bank’s VISA card and he has a good job the odds are likely low that his bank is going to sue him. Bill does not own any real property in his own name so his bank cannot sue him, obtain a judgment, and place a lien on his real property. Bill lives in New Brunswick, the only province in Canada which does not permit wage garnishments, so his wages cannot be garnisheed as long as he is a New Brunswick resident.
It would be very risky for Bill’s bank to spend approximately $1,500 in legal fees and disbursements to obtain a $15,000 judgment against Bill Smith when it is going to be impossible to enforce its judgment against him as long as (i) he does not own any real property, and (ii) he continues to reside in New Brunswick. Furthermore, if Bill Smith were to move to another province then his bank might never recover any monies from him, unless he were to purchase real property in his own name, because any garnishments on Bill Smith’s wages would compete with back support payments owed to his ex-wife and any garnishments obtained by other creditors.
You might not be sued because you are judgment proof
A creditor who wants to recover monies from a debtor by suing the debtor must successfully go through a two-step process. Firstly, the creditor must sue the debtor and obtain a judgment, either a default judgment if the debtor does not file a defence, or a judgment following a trial. Secondly, once a creditor obtains a judgment against the debtor the creditor must successfully enforce the judgment. Once a creditor has obtained a judgment against a debtor then the creditor, now referred to as the judgment creditor, has a number of ways to enforce the judgment against the debtor, now known as the judgment debtor.
It is important to note that a judgment debtor has no legal obligation to assist the judgment creditor with the recovery of monies owed to the judgment creditor.
The most common enforcement remedies include the following:
- Placing a lien on the judgment debtor’s real property
This is the easiest and most cost-effective way for a judgment creditor to obtain monies from a judgment debtor who owns real property in their own name. Once the judgment debtor sells or refinances the property then the judgment creditor is going to get paid.
2. Garnishment
A judgment creditor can arrange, with the assistance of the court, to send a garnishment notice to anyone who owes monies to the judgment debtor requiring them to pay certain monies into court which may then get paid to the judgment creditor. The most common type of garnishment is the wage garnishment in which employers are ordered to pay a portion of a judgment debtor’s wages into court. Provinces restrict the amount of monies that can be paid out under a wage garnishment. Another type of garnishment order is a bank garnishment where a judgment debtor’s bank branch receives a garnishment notice to pay some or all of the judgment debtor’s monies on deposit at the bank branch into court. Similarly, a judgment creditor could arrange to have a garnishment notice sent to anyone who owes monies to a judgment debtor including a customer of a judgment debtor who operates a business or who is an independent contractor.
Not all income sources can be the subject of a garnishment notice. A judgment creditor cannot do a garnishment against social assistance benefits received by a judgment debtor.
You might not be sued because you are near-judgment proof
It is possible that your creditor might decide not to sue you because despite the fact that you are not judgment proof you are what I refer to as near-judgment proof. A person is judgment proof if he does not own any assets or have income sufficient to satisfy an outstanding judgment. A person is near-judgment proof if she can relatively easily reorganize her life to defeat a judgment creditor. For example, if you work in retail or the hospitality industry and your wages become garnisheed you could simply quit your job—and find work with a different employer—a strategy that will effectively end the garnishment of your wages and defeat your creditors’ attempts to recover monies from you.
You might not be sued because you live outside Canada
If you owe monies to a Canadian creditor and you are living outside Canada the odds are extremely low that you are going to be sued. During my twelve years as a collection lawyer and collection industry insider it never ceased to amaze me how rare it would be for a Canadian creditor to want to sue a debtor living outside of Canada.
You might not be sued because of potential adverse publicity
In certain situations a creditor might be very reluctant to sue someone because of the potential bad publicity that might arise should the lawsuit become public. One can envision a number of scenarios where this might arise. Imagine one of Canada’s big banks suing an eighty year-old widow living in a home on a fixed income. Or imagine a member of the armed forces being sued by a credit card company upon returning home as a quadriplegic after being injured by a roadside bomb in Afghanistan.
You might not be sued because of misconduct by your creditor or its collection agent
It is possible that your creditor or its collection agent might be reluctant to sue a person because of misconduct during attempts to collect the debt. I once represented a consumer who was sued for $35,000 by a collection agency for an outstanding credit card debt. I felt the collection agency had engaged in a questionable and possibly illegal collection practice, and I communicated this fact to the president of the collection agency. I made an offer, on behalf of my client, of a $5,000 payment to the collection agency as full and final settlement of its $35,000 lawsuit against my client. My client decided to go on television and complain about the collection agency’s conduct without mentioning the name of the collection agency. After the television story aired the collection agency agreed to settle the lawsuit for $5,000.
If your creditor or its collection agent has engaged in misconduct while attempting to collect monies from you then it might be concerned about bad publicity or a potential lawsuit brought by you if it were to sue you.
