Don't get caught

Janice and Larry like to spend money. They also like the things that money can buy; their house is full of all the latest gadgets. They often buy things that are on sale; however, regardless of this, they are constantly short of money. 

Recently, this shortage was overcome when Larry acquired a Visa card. Now their passion for spending is greater than ever. Since he received his Visa card, they have bought a new television and a CD player for their daughter Melissa. They have also just bought an expensive computer so that Melissa can go on the internet and do her homework. Neither Janice nor Larry has ever used a computer, but they feel that in today’s advancing world of technology, their daughter should have one.

Larry works for the lumber industry and rumours are beginning to surface that major layoffs are coming sometime this year. Janice works part time at a local retail store for an average of 15 hours per week. Janice and Larry never have enough money on hand to pay the Visa account in full. They always try to pay the minimum monthly payment, but sometimes they even find this challenging. As a result, they have a large outstanding balance and are paying a very high rate of interest. Their 12-year old car is in constant need of repairs, which takes up a lot of money. They have no money saved in the bank in the event of an emergency.

We live in a materialistic world. Money and the possessions are very important to many people. All of us are forced to pay attention to our money at different times in our lives. We depend on it to acquire the goods and services we need. We also depend on it to maintain our standard of living. Some of us use credit to increase our income, as if we received a raise at work.

By the time Janice and Larry came to Solutions™ - a credit counseling agency, their Visa card was months in arrears and the card services division had already decided to sue them. Janice and Larry were frantic. They had no idea of their rights or their responsibilities.

A creditor who has an account in default has the right to enforce security and use reasonable collection practices. If their collection efforts do not result in payment of the debt, the next alternative the credit grantor may consider is to sue the debtor. The details of the procedure may vary in each province, but the following is a general summary of the process and will indicate the procedure for collecting debts through the courts.

The following is not in any way to be interpreted as legal advice. If you or someone you know is being sued talk to a professional today; do not wait.

The creditor files a claim at the appropriate court (this will depend on the dollar amount of the claim). The claim includes the names and addresses of both the debtor and creditor, and the creditor’s reasons for suing. The court clerk sends the claim and a summons to the debtor, who has three alternatives:

  1. The debtor can try to settle the matter out of court. Always have everything done in writing. Make sure to have the creditor cancel the pending action if you come to an arrangement.
  2. File a reply or defence to the action.
  3. Do nothing (this is not recommended).

If the debtor selects the first alternative, the debtor and creditor may negotiate payment of the debt. If they reach an agreement, the creditor drops the claim.

If the debtor chooses the second alternative, they must file a defence in the same court within a specified number of days stating the reasons for disputing the creditor’s claim. Anyone who decides to ignore the summons will discover that failure to file a reply to the court will result in a judgment against him or her by default.

When the debtor files a defence, it may be set down for a settlement conference (depending on the province) and eventually there may be a trial to hear both sides of the matter. During this time all collection activity will cease, the interest on the debt however, is still accruing.

On the settlement date or trial date all witnesses, the creditor, the debtor and any lawyers for either party will appear before the judge. Small claims courts are meant to be informal courts where legal counsel is not required and debtors may represent themselves.

After hearing both sides of the issue the judge will announce his or her decision. The judge’s decision or judgment has two possible outcomes; either the debtor does not owe the money and the case is dismissed, or the debtor does owe some or all of the money claimed by the creditor.

If judgment is granted to the creditor, the debtor is responsible for paying the amount owing. This is called a judgment debt.

Some bill collectors try to scare debtors with threats of huge legal fees if the debt goes to court. In my experience, I have not found this to be the case. However, the creditor is entitled to ask the court for filing fees and service fees, not legal fees.

Janice and Larry do not want to go to court and are willing to do anything to avoid this experience, however, in some cases it may be necessary to have a court decide the issue if no other compromise can be found.

Credit counseling can be an effective method of mediation between debtor and creditor. Be sure to deal only with a licensed qualified credit counsellor.