Debt Collection
I act for creditors or debtors with respect to debt collection, including the following types of debts:
- loans to companies, partnerships, societies, and natural persons;
- personal guarantees; and
- trade accounts owed to suppliers of goods or services.
Missing a payment is one way a loan or a debt can fall into default. But that’s not the only way. For example, loan agreements often include a list of specific situations, any one of which can lead to the loan being deemed to have fallen into default despite the loan payments being current.
Generally speaking, a personal guarantee is a promise by one person (the guarantor) to pay the debt of another (the principal debtor) if the principal debtor fails to pay the debt. In the example of a parent “co-signing” a loan so her child can borrow money to finance the start-up of a business, the parent is the guarantor and the child is the principal debtor. The law of personal guarantees is technical, and historically it has developed protections for the guarantor (mainly because the guarantor does not receive any direct benefit from the lender in exchange for providing the guarantee). The determination of whether a debt can be enforced against a guarantor often comes down to the specific wording of the guarantee document itself.
There are rules about how the interest rate must be stated in a loan document. If the loan agreement doesn’t comply with these rules, the creditor might not be entitled to claim interest based on the (usually higher) interest rate set out in the contract. Instead, the creditor might be entitled to claim only a modest rate of simple interest.
Debts generally don’t age well. Whether you’re a creditor or a debtor, if you find yourself dealing with an unpaid debt, or missed payments, or similar circumstances, seek legal advice promptly. There are often time limits at play in these circumstances, and sometimes the time limit is very short.
For a creditor, a missed time deadline might mean that the creditor cannot recover the amount owed by the debtor, regardless of how much was owed or how strong the claim was, simply because the creditor missed that time deadline.
On the other hand, for a debtor, missing one payment might not lead to the entire outstanding amount becoming due and owing all at once if, for example, the terms of the loan include a forgiveness provision which allows the debtor to make good that missed payment within a short window of opportunity.
The foregoing is general legal information only, based on the law of British Columbia. Readers should consult a lawyer to obtain specific legal advice about their particular situation.
