Saskatchewan Debtor/Creditor Law

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A Debtor owes money (a 'debt') to a Creditor. With a few exceptions, enforceable debts are created by civil law. However, the laws concerning priorities between competing creditors and how payment may be enforced is a complex sub-section of civil law.

The main problem is that some people don't pay when they owe a debt. If so, the Creditor may obtain a Judgment of the court that they must pay. Sometimes they still don't pay.

There are several remedies. The Creditor may bring an application to punish the party for contempt of court. They may issue a Writ Of Execution to order the Sheriff to seize and sell property. They may issue a Garnishee Summons to compel people who owe money to the offending party to pay the debt to the court instead. They may register the Writ Of Execution as an encumbrance against the offending party's goods and lands. They may examine the Judgment Debtor under oath about their assets and income in a procedure called an Examination In Aid Of Execution. There are too many remedies to list them all.

Another problem is that some creditors will kill the golden goose or excessively oppress the debtor. To this end, the law creates certain exemptions that forbid the seizure of certain things, such as clothing, or the books of a professional person. Another example is that the garnishment of wages must leave a specified minimum amount for the person and their dependants. These exemptions are scattered throughout the law. Sometimes the government will act to protect an industry facing temporary rough times. There is and has been much frequently changing law on the books protecting farmer's.

Sometimes debtors get so far into debt that they may never get out. Such people tend to give up working or turn to crime or otherwise become destructive to society. So, the law permits people to apply for bankruptcy. After a bankruptcy, all debt is cleared (discharged), and the person (the 'bankrupt') can start over. During the bankruptcy, no Creditor can enforce their claim. The price is that all non-exempt property at the time of bankruptcy and all income not required for basic necessities will go to a Trustee In Bankruptcy. The Trustee then sorts out all the claims of the creditors and pays them whatever is available according to a complex scheme of priority classifications. Within each classification, payment is made proportionately to the debt. There is a complex scheme in order to sort out the debts, basically involving notice to the creditors, who must prove their claim. If the creditor feels the Trustee wrongly excluded their claim, or wrongly approved another claim, they may apply to the court. Likewise, if a creditor is unhappy with any decision of the Trustee, they may apply to the court. A creditor can also object, on certain complex grounds, that the discharge should not be granted at all or in part, or that there should be conditions attached.

There are laws which permit a debtor to avoid bankruptcy, while still controlling their creditors. For instance, they may make a formal proposal to creditors under the Bankruptcy Act. If the creditors accept it, then they may not enforce while the debtor complies with it. It might include limited periodic payments, maybe a reduction of or suspension of interest, perhaps even reduction of the debt. If the creditors reject it or if the debtor fails to comply with it, then the bankruptcy of the debtor is automatic.

A creditor can also deliberately force a bankruptcy, by proving to a court that a debtor is insolvent. This is a mutually destructive approach, but sometimes necessary.

Generally speaking, creditors share proportionately. However, a creditor can and should improve that when first permitting the debt, by obtaining security. Security is, in rough terms, an ownership of some or all of the debtor's property. For instance, when you buy a house, generally you borrow from the bank, which takes a 'mortgage', which it registers as an encumbrance against the land. In its ancient origins, the creditor (mortgagee) owned the land, but promised to transfer it back upon repayment in full. The law protecting the debtor (mortgagor) became complex and problematic. Ultimately, the mortgagor now retains title of the land and the mortgagee's registered encumbrance protects its declining ownership interest.

Since the mortgagee owns the land, its ownership will survive a bankruptcy. Since the first $32,000.00 of a homestead property (principal residence) is exempt, in many cases, a bankrupt person just continues with their mortgage as usual, eventually owning the property.

In a bankruptcy, a secured creditor must prove their security as well as their debt and place a value on the security. Then the Trustee In Bankruptcy may choose to redeem the debt and receive the secured property, or release the security and apply the value against the debt.

With secured property, it is a case of 'first come, first served', as determined by order of registration with the government registries. For land, the creditor must register at the Land Titles Office (or Information Services Corporation, as it is becoming). For other property, it is registered at the Personal Property Security Registry (PPSR). At the PPSR, debts which were created to obtain the property in the first place (Purchase Money Security Interests (PMSIs)) have a super-priority. There are complicated exceptions to the registration order rule, generally applying to situations where the claim should have been obvious, such as where the property is in the possession of the creditor.

If the debtor is a corporation or other business or organization, it is sometimes possible to obtain a receiving order, where a Receiver or Receiver/Manager takes over operations to ensure that priority is given to paying debts, but the business is not destroyed.

Although the courts cannot enforce their orders outside their own jurisdiction, most jurisdictions have reciprocating enforcement treaties. Essentially, they say to each other, "I'll enforce your's if you enforce mine." There are generally treaties concerning the registration of securities as well.

The long and the short of it is that it is a fiercely complex area of the law with plenty of contradictory rules and claims which must be sorted out. Tackling it without a lawyer is begging for trouble. Allowing a debt without security prepared and registered by a lawyer is foolish. Even just seizing property or finding the debtor requires skill and experience in knowing where and how to look.

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