What To Do If You Are Being Sued By Your Bank/Creditor In Ontario
Times have been difficult financially since COVID-19 - the federal deficit has skyrocketed, unemployment rates have reached record highs, and credit card delinquencies are starting to creep up. As such, more and more Canadians may soon face the possibility of being sued for credit card and other debt.
This article will briefly lay out the steps that your bank and/or creditor may take to obtain and enforce a judgment against you in Small Claims Court (i.e. for a debt under $35,000), and the options available to you in response.
Step 1: Soft Demands
The bank’s first step in attempting to collect on debt is likely to have a collection agent or ‘resolution officer’ contact you and demand payment on the debt. This is a good opportunity to attempt to negotiate a payment arrangement before the matter potentially escalates to court. Be sure to request a reduction of the principal of your debt, as well as a reduction of the interest rate, especially if you are being sued for credit card debt (as interest rates tend to be quite high). Banks may be willing to do both, especially if such reductions are supported by your financial circumstances.
Your creditor may propose a more substantial discount if you can pay a lump sum, or pay in a shorter period of time. You may wish to take this approach if you have the means to pay, or if you can borrow money elsewhere with a lower interest rate.
Be prepared to provide financial documents such as your Notice of Assessment, proof of rent/mortgage, and proof of (un)employment, etc. to your creditor; they will use this information to assess how much they believe you are able to pay.
Step 2: Legal Action
If a payment arrangement is not reached between you and your creditor, your creditor may initiate legal action against you. If the claim is for under $35,000, a creditor will proceed in Small Claims Court. For claims over $35,000, a creditor will have to proceed in the Superior Court of Justice.
Enforcement
The ultimate goal of initiating a claim is to obtain judgment. Once judgment is obtained, a creditor can access several tools to enforce their claim. Let’s briefly discuss these tools, so you can understand why it may be preferable to avoid judgment, if possible.
1. Writs Against Your Property
Once judgment is obtained, a creditor may issue a writ against your real property (e.g. a house or condo), or personal property (e.g. a vehicle). The writ essentially serves as a lien against your property, and may provide your judgment creditor with the power to possess and sell your property in order to pay off your debt. However, the process required to possess and sell your property, especially if it is real property, is typically time-consuming and expensive. As such, creditors do not usually resort to this step unless a debtor has sufficient equity in their property and the creditor has exhausted all other efforts.
2. Garnishment
Your creditor also has the power to garnish debts owed by others to you. Typically, this entails that your creditor may garnish your wages or your bank account. This means that your creditor may be able to seize your bank account to pay off your debt, or may oblige your employer to disperse a certain portion of your wages to them.
Visit this website for an in-depth assessment of the above-mentioned enforcement steps in Small Claims Court.
A wages garnishment may cause complications for you, especially if it is credit card debt that you owe. This is due to the fact that credit card interest rates often range from roughly 19%-25% per annum once they go into default. As such, having a wages garnishment in place may result in your wages being garnished for several years, and may result in you having to pay substantial amounts by way of interest. This is why it is important for you to reduce the applicable interest rate, if possible.
3. Other Considerations
Having a judgment against you may negatively impact your credit rating.
Step 3: Getting to Enforcement (and how to Avoid it)
Given the availability of the above-noted enforcement avenues upon judgment, you may wish to take steps to resolve the matter without having judgment registered against you.
Once a claim is served onto you, it is imperative that you provide a reply in the form of a Form 9A Defence within the time permitted by the Small Claims Court Rules (“Rules”) (under normal circumstances, 20 days). If you do not reply in time, your creditor may obtain default judgment against you.
Visit this website for a guide to replying to a claim in Small Claims Court.
Terms of Payment
Form 9A Defence
If you acknowledge that you owe all or part of the debt being claimed, you have the option of admitting liability for all or part of the creditor’s claim and proposing a ‘terms of payment’ within your Form 9A Defence. This option is only available in Small Claims Court, and may be helpful to you if you acknowledge all or part of your debt.
Suppose you are being sued for $20,000 with interest at an annual rate of 24.99% - you can propose to pay $300/month until $15,000 is paid out with interest accruing at 10.00% per annum. Your creditor then has the option of accepting or disputing your terms of payment. If they dispute your proposal, they must request a “terms of payment hearing” to be held.
Keep in mind that Form 9A Defence does not specifically provide a space where you can propose a reduction of the interest rate (as such, propose a reduction of the interest rate in a blank space that is nearby the portion where you lay out your terms of payment). Additionally, technically speaking, if you admit only part of the claim, you should provide a defence as to why you do not owe the remainder.
This, however, may not be an issue. Think of your completion of the Form 9A Defence simply as a way of triggering a terms of payment hearing. If your creditor does not agree to your terms of payment, they have no choice but to request a terms of payment hearing. Of course, there is also a possibility that your creditor may accept your terms of payment (with the reduced principal and interest rate) - which is all the better.
Terms of Payment Hearing
As per rule 9.03(5) of the Rules, a referee/judge at a terms of payment hearing may make an order pertaining to the terms of payment. As the Small Claims Court is meant to be a court of equity, judges are often sympathetic to the plight of debtors, especially when they are up against large corporations with deep pockets. A judge may, for instance, deliberate on the amount that you are able to pay each month, and may even reduce the annual interest rate applicable to your debt.
Once a terms of payment hearing has been scheduled, a Financial Information Form is sent to you, which you must fill out and serve onto your creditor before the hearing, along with documents in support (e.g. Notice of Assessment, proof of rent/mortgage, and proof of (un)employment, etc.).
Once at the hearing, make sure you present the Financial Information Form and the documents in support to the judge, and argue that you are only capable of paying the amount you proposed in your Form 9A Defence.
The judge may then make an order pertaining to the terms of payment without simultaneously rendering a judgment against you. As such, although you are still court-ordered to abide by the terms of payments, you have avoided having judgment registered against you.
Keep in mind that, as per rule 9.03(7) of the Rules, if you fail to make payments in accordance with the order, your creditor may move to obtain default judgment against you for the unpaid balance of the order, unless the court orders otherwise. As such, in order to provide yourself some added protection, you may want to insist that the judge include a condition in the order allowing you an opportunity to bring your payment plan into good standing upon a potential default. You may, for instance, ask that you are given 15 days after default to pay the amount due, and therefore bring the account into good standing, before your creditor can move to obtain default judgment. You may additionally insist that your creditor provide you advanced notice if they intend on seeking default judgment. This way, a single late payment does not have the potential to lead to default judgment.
This hearing also presents you with another great opportunity to negotiate with your creditor, this time in the presence of a judge that may be sympathetic to your position. Your creditor may be willing to enter into a monthly payment plan with a reduced principal and interest rate. Your creditor may offer an even larger discount if you are in a position to pay a lump sum amount, or if you can pay in a shorter period of time.
Keep in mind that your creditor may insist that you consent to judgment in order to facilitate such discounts. A judge at your terms of payment hearing may be susceptible to this suggestion - and may be reluctant to unilaterally order a reduction of your principal or interest rate where the creditor is offering both (upon a consent to judgment).
As such, this may be a prudent decision for you, even if it results in judgment. This is especially so, given that, as per rule 20.02 of the Rules, a creditor cannot enforce on a judgment while an active order for periodic payment is in force. However, if you later default on payment, your creditor may terminate the periodic payment order and move to enforce the judgment. There are therefore potential pros and cons to consenting to judgment rather than insisting on a terms of payment order under rule 9.03(5) of the Rules.
Defence
If you do not believe that you owe the amount being claimed by your creditor, it may be worthwhile to dispute your creditor’s claim within your Form 9A Defence. However, this may not be prudent unless you have a legitimate defence. This is especially the case in a bank debt situation, where your creditor may have substantial evidence to support the existence of the debt (e.g. bank statements, signed agreement, etc.). As such, you may wish to consult a paralegal or lawyer to determine whether you have a genuine defence before deciding to dispute the claim within your Form 9A Defence.
If you were to dispute the claim, you would then be scheduled for a ‘settlement conference’. A settlement conference is similar to a terms of payment hearing in that both provide you and your creditor an opportunity to negotiate a potential settlement of your matter in the presence of a judge. However, a settlement conference has more of an emphasis on the merits of the case, whereas a terms of payment hearing is largely focused on your ability to pay and therefore the terms of your payment. As such, there is no provision in the Rules which provides a judge at a settlement conference the power to make an order as to the terms of payment.
If you are being sued by your bank or other creditor in Small Claims Court in Ontario, you should attempt to come to an out-of-court payment arrangement with them. If an agreement is not reached and your creditor proceeds to serve you with a claim, be sure to provide a reply in the form of a Form 9A Defence within the time permitted by the Rules. If you do not dispute that you owe the amount claimed, propose a terms of payment within your Form 9A Defence. If the creditor does not accept your terms of payment, complete your Financial Information Form and be prepared to argue at a terms of payment hearing as to why you cannot pay more than the amount proposed. Use this as another opportunity to attempt to negotiate with your creditor. Alternatively, if you believe you have a legitimate basis for disputing the claim, be prepared to draft a defence outlining your basis for disputation. Under such circumstances, it may be worthwhile contacting a paralegal or lawyer.
