Getting Your Money: Focused Professionals Protecting Creditor Rights

Question: What are a creditor's rights when a debt is unpaid?

Answer: A creditor has the legal right to demand repayment and can initiate court proceedings to recover owed money. By securing written agreements and documentation, creditors can strengthen their legal position and pursue enforcement actions, such as wage garnishment and property liens, to recover their debts effectively.

A Creditor's Right to Payment

Collecting.Money helps creditors to connect with the legal representatives who may be available to enforce legal rights for the recovery of outstanding debts.  Whether the issue relates to overdue invoices, unpaid personal loans, dishonoured cheques, or other forms of defaulted obligations, there are clear rules that govern the recovery of money owed.  This includes the procedural rules and substantive law for litigation whether such is before the Small Claims Court or before the Superior Court of Justice, which is dependent upon the amount and the complexity of the case.

When a debt arises — whether from a loan agreement, unpaid invoice, promissory note, lease agreement, or judgment order — the creditor is legally entitled to demand repayment.  The law generally presumes that money lent or owed must be repaid unless there is clear evidence to the contrary.  Where payment is refused, delayed, or otherwise unfulfilled, legal remedies exist to recover the debt.

Creditors have the right to initiate legal action for debt recovery through formal court proceedings.  These proceedings often begin with a demand letter or a pending litigation warning letter and may proceed to a claim being filed within the Small Claims Court or within the Superior Court (for higher-value debt matters).  Creditors may also seek judgment enforcement mechanisms once an Order is obtained, including wage garnishment, bank account seizures, and property liens.

The Importance of Written Agreements

Although verbal contracts are generally enforceable in Ontario, a written agreement provides clarity and evidentiary strength in litigation.  Contracts should set out repayment terms, due dates, interest rates, default clauses, and any collateral security if applicable.  Even in the absence of a formal contract, records of communication, invoices, receipts, and banking transactions can support a claim for repayment.

For business debts, a consistent practice of issuing invoices and following up with overdue notices strengthens a creditor's legal position.  In the context of personal loans, signed promissory notes or acknowledgment of the debt in writing can serve as compelling evidence in court.

Defences Raised by Debtors

Debtors may raise a range of legal defences to delay or resist payment.  These can include disputes over the amount owed, claims of partial or full payment, defective goods or services provided, or allegations of unjust or usurious interest charges.  A court will consider both parties' evidence and determine whether a debt is owed and in what amount.

In some cases, debtors may also file counterclaims alleging misconduct or breach of contract by the creditor.  For this reason, it is vital that creditors maintain accurate and complete documentation of all relevant transactions and correspondence.

Time Limits for Taking Action

Debt litigation is subject to statutory limitation periods.  In Ontario (check the law in your Province), the general limitation period is two years from the date the creditor knew or ought to have known that the debt was due and unpaid.  Certain debts, such as those under seal or pursuant to a court judgment, may be subject to longer limitation periods.  Prompt action is crucial to preserving legal rights.

Creditors should be aware that attempts to collect a debt outside of legal proceedings — such as issuing demands or negotiating payment — do not automatically pause or extend the limitation period.  Legal advice should be sought to assess the applicable timelines for initiating litigation.

Remedies After Judgment

Once a judgment is obtained in court, a creditor may pursue enforcement options to compel payment.  These remedies include:

• Wage garnishment — directing an employer to deduct payments from the debtor’s wages
• Bank garnishment — freezing and seizing funds from a debtor’s account
• Writ of seizure and sale — placing a lien against the debtor’s property
• Examination hearing — compelling the debtor to disclose assets and income

Legal Assistance and Collection Professionals

While creditors may represent themselves in court proceedings, many choose to retain licensed legal professionals or collection agencies with litigation authority.  Representation by paralegals, lawyers, or licensed collection firms ensures compliance with all procedural requirements and maximizes the likelihood of recovery.

Creditors should ensure that representatives are properly licensed and experienced in debt litigation.  Legal professionals can also help identify the most cost-effective approach, including negotiated settlements, default judgments, or expedited motions where applicable.