Someone knocks on your door and hands you court papers – a statement of claim. You are sued by the bank for $25,000 because you guaranteed a friend’s loan. The friend is also sued. He tells you not to worry and that he will take care of it. Two months later, the friend files for bankruptcy but you do not know this. He has not taken care of the loan and lawsuit. Five months later, you apply to lease a car. The leasing company does a credit check on you and you learn, for the first time, that there is a judgment against you for the $25,000. You do not qualify to lease the car because of the bad credit check. What has happened?
When you were handed the statement of claim, you had 20 days to respond with a statement of defence. Because no defence was filed with the court, the bank went ahead and “noted you in default” because you failed to file a defence. As a result of this procedural act, the bank was no longer required to give you notice of any further steps the bank might take against you in the lawsuit. The bank took the further step of signing judgment against you for the $25,000 – a default judgment. What do you do now?
You should immediately hire a lawyer to move before the court, that is, to ask the court, to set aside the default judgment. You must address three issues with the court. You must explain any delay in moving before the court after becoming aware of the default judgment. So, it is imperative that you move as soon as possible and not ignore your legal problem.
You must explain the reason you were in default in the lawsuit. You will tell the court that your friend said he would take care of the loan and lawsuit. In other situations, a common explanation to the court is that the defendant did not actually receive the statement of claim. This is especially true in the Small Claims Court where the plaintiff, who is not your friend, may simply mail the claim to you at what the plaintiff believes to be your last known address. You may have already moved from that address.
Finally, you must prove that you have an arguable defence. Usually, this is achieved by filing with the court a draft of the statement of defence that you propose to file with the court if the judgment is set aside.
The court will sometimes impose terms on setting aside a default judgment. If your response to the three issues is a very weak one, a court might require you to pay some of the $25,000 into court as a term to set aside the judgment.