In my 25 years of legal practice, I have encountered countless cases where debts remain uncollected—not because the money wasn’t owed, but because creditors failed to take proper precautions at the outset. The courtroom is littered with valid claims that cannot succeed. Understanding why debts become unrecoverable is the first step toward protecting yourself before you extend credit.
The Five Ways Debts Die
1. No Evidence
The most common reason creditors lose is startlingly simple: they cannot prove what they are owed. A handshake agreement between friends, a verbal promise from a business partner, or an informal arrangement with family—these create real obligations, but obligations that evaporate in court without documentation.
Protect yourself: Always reduce agreements to writing. A promissory note need not be elaborate. At minimum, it should identify the parties, state the principal amount, specify the interest rate (if any), establish a repayment schedule, and bear the debtor’s signature. For larger sums, have the document witnessed or notarized. Keep copies of all communications, invoices, and payment records.
2. No Collateral
An unsecured debt is only as good as the debtor’s willingness and ability to pay. When that willingness disappears, you become one of many creditors competing for whatever assets remain—often nothing.
Protect yourself: For significant loans, take security. Register your interest under the Personal Property Security Act for personal property, or register a mortgage against real property. A security interest transforms you from an unsecured creditor hoping for payment into a secured creditor with priority claims against specific assets.
3. The Debtor Disappears
You cannot sue someone you cannot find. Service of legal documents is a jurisdictional requirement, and a debtor who has left the province—or the country—creates enormous practical obstacles to recovery.
Protect yourself: Before extending credit, verify the debtor’s identity and obtain current contact information, including home address, employer details, and references. For business transactions, confirm the corporate status and identify the principals. Consider requiring personal guarantees from directors of small corporations.
4. The Limitation Period Expires
In British Columbia, the Limitation Act imposes a basic two-year limitation period that begins running when the claim is “discovered”—typically when the debt becomes due and payable. Once that window closes, your claim is extinguished. No exceptions, no extensions for good excuses.
Protect yourself: Diarize your limitation dates. Do not assume that ongoing negotiations or partial payments will preserve your claim indefinitely. If you are approaching the two-year mark and resolution seems unlikely, commence legal proceedings to preserve your rights. You can always discontinue the action if settlement is reached.
5. Bankruptcy Intervenes
When a debtor files for bankruptcy or makes a consumer proposal under the Bankruptcy and Insolvency Act, an automatic stay of proceedings halts all collection efforts. Most unsecured debts are discharged, leaving creditors with pennies on the dollar—or nothing at all.
Protect yourself: Secured creditors fare far better in bankruptcy proceedings. Taking security, as discussed above, provides protection that survives insolvency. Additionally, certain debts—including those arising from fraud or misrepresentation—may survive bankruptcy. Document any suspicious circumstances surrounding the debt.
The Time to Act Is Now
The thread connecting each of these failures is the same: creditors who take precautions before extending credit recover their money. Those who rely on trust, goodwill, or the assumption that “it won’t happen to me” often do not.
If you are owed money and have concerns about any of these issues, seek legal advice promptly. The limitation clock is already running.
This article provides general legal information and does not constitute legal advice. For advice specific to your situation, please contact George Lee Law at 604-681-1611.