Can A Debt Collection Agency Sue You In Canada?

woman struggling to manage debt bills

If you’re struggling with debt, you might have received calls from collection agencies threatening to sue you if you don’t pay your debt quickly. You may be wondering:

“Can a collection agency sue you in Canada?”

The answer is yes, but the process is not as simple as collection agencies make it seem. Collection agencies have the right to take you to court if you haven’t paid your overdue bills, but the likelihood of them acting on that right is low, especially if you don’t have an income that can be garnished or own any assets.

You may be able to build an easy defense against court action for a collections account if the debt’s limitation period has expired. And even if the collection agency acts on that right and sues you, you still have the right to defend yourself in court, so the matter is far from settled.

Read on to find out what happens when a collection wants to take you to court, how you can stop the court proceedings, and how to stop collection actions.

What Happens If You Don’t Pay A Collection Agency?

Collection agencies are no different from any other business, so they need money to operate and stay afloat. But unlike other businesses, collection agencies need to collect money from people who are in debt.

You didn’t loan money from a collection agency, so you might be wondering why a collection agency is now calling you to recover the debt. Well, collection agencies obtain accounts of unpaid debt through assignments or by buying them.

Lenders like banks and credit card companies hire collection agencies to collect money from their debtors. Collection agencies receive commissions that usually account for 30% of the debts they collect on the behalf of the lender.

But collection agencies can also buy unpaid debt accounts. Lenders are sometimes unwilling to struggle to collect certain debts, so they sell their debt accounts to collection agencies. Once they own the debt accounts, collection agencies can keep the entire sum owed to the lender, so they contact the debtors to recover the money.

This is why collection agencies sometimes contact debtors to collect very old debts, even though the debtors haven’t been contacted about those debts in years.

judge striking gavel at hearing

Can A Collection Agency Take Me To Court?

A collection agency has the right to take you to court, but that doesn’t happen as often as they make it seem. Collection agencies like profit as much as any other business, so they don’t want to spend too much to collect your debt.

Suing you implies extra costs. The agency needs to pay a lawyer and cover their fee while they file the necessary paperwork to take you to court. As a result, collection agencies will only sue their debtors if they believe it would be worthwhile.

A collection agency will only threaten to sue but won’t take real legal action against you if:

  • Your debt is too small – Most large agencies avoid lawsuits when the unpaid debt is lower than a certain threshold because a lawsuit might make the collection more expensive than the debt itself. There’s no point in recovering a few hundred dollars when the legal action costs thousands.
  • Your debt is too old – Debt obligations never expire, so some debt collectors attempt to recover money from debtors who loaned certain sums years before. However, every Canadian province has a statute of limitations for most unsecured debts.

    The statute of limitations prevents debt collectors from taking legal action against the debtor after a certain period of time has passed.

    This is also why some debts are called time-barred debts, because they’re no longer collectible after a certain amount of time. In Ontario, the statute of limitations limits legal actions to up to two years. If a creditor sues you after two years have passed, you can prevent a court process by filing a Statement of Defense that shows the debt is past its limitations period.

  • You don’t live in Canada – If you owe money to a Canadian lender but you’re living abroad, the chances of being sued are pretty slim, even if you receive calls threatening legal action.

    To sue you in another country, your creditor will first have to sue you in Canada and bring the lawsuit to your country of residence. This can be a lengthy and complicated process, so most debtors won’t go through it. As a result, most Canadian lenders won’t sue you if you don’t live in Canada.

  • You are creditor proof – You are considered creditor proof when you don’t own any assets and you don’t have an income that can be garnished. This makes it impossible for a debt collector to recover any sum you might owe, even if they bring you to court.

What If You Don’t Pay A Collection Agency? What Happens Then?

Collection agencies don’t earn anything if they don’t collect your debt. So collection agencies are relentless in their efforts to convince you to pay up. They make threatening calls, write threatening letters, and sometimes even harass you in order to collect their money.

However, collection agencies have to respect the law and abide by the rules and regulations of each province. In Ontario, the Collection and Debt Settlement Services Act prohibits collectors from harassing debtors in order to collect their outstanding debts.

This means collection agencies have to wait 6 days between two attempts to collect payments, whether they contact you through email, voicemail, phone call, or in person. If you don’t answer your phone when the collector calls and they don’t leave a message, that’s not considered a contact. Letters you receive by regular mail are also not considered a contact.

Can You Ignore A Collection Agency?

It’s not a good idea to ignore your creditors. Keep in touch with them, even if just to explain why you can’t make the payments. You should also consider writing an email or a letter explaining your current situation, what payments you can make (if any), and what you expect to happen in the future. Keep a copy of the email or letter for your records.

Even if you send the email or letter, you will most likely continue to receive collection calls, but it’s better to answer them and offer some form of payment arrangement if that’s possible. Keep a record of your communication with the collector so you can reference them when needed.

You may receive letters urging you to call back within a set period of time (5 days, 10 days, etc.). Return the creditor’s call so the collection agency will be aware that you’re keeping the lines of communication open.

Can A Collection Agency Withdraw Money From My Bank Account?

A Canadian debt collection agency has the legal right to garnish your wages. Your income, the province you live in, and the type of debt you owe influence the amount of money a collection agency can garnish and how that garnishment is handled.

Talk to a Licensed Insolvency Trustee to find out exactly how much money a collection agency can garnish from your wages.

What Happens During The Court Process For Debt Consolidation?

Most debt consolidation processes for late payments follow three stages:

  • Initial collection attempts – In this stage, the creditor or the collector agency tries to contact you directly to discuss a payment plan. If the collector agency buys your debt, they must send you a written notice mentioning who they work for, your original debtor’s name, the debt account number, when they bought the account, and the sum you owe. They are legally allowed to call you five days after sending this notification message.
  • Court proceeding and defense – If the lender or the collection agency decides to take legal action against you, they have to send you a statement of claim or notice of legal action. You can dispute or accept the claim within 21 days.

    If you don’t file a Statement of Defense within 21 days or attend the trial, the court will most likely rule in favor of your creditor.

    If you attend the trial but do not present an appropriate defense, the judge may sign a Judgement Order. This Order indicates that the court acknowledges you owe the debt and gives the creditor the legal right to collect through other legal means.

  • Pursuing legal recovery options – When the collection agency receives a default judgment after winning the case against you, they will try to recover the debt. They can achieve this in several ways:
    • They might request the court to issue a garnishment order that would allow them to garnish your wages.
    • They might freeze your bank account and request your bank to direct the deposits in your account to them.
    • Get a Writ of Execution that would allow them to seize your non-exempt property in order to sell it and settle the debt. Even some unsecured creditors can attempt to seize your car for unpaid debt.
    • File a lien on your property which must be settled before you’re allowed to sell it.

What If You Have A Judgment Against You? What Can You Do Then?

If the court issued a judgment against you, you can act in two ways:

  1. Make a settlement offer – You can make your creditor or collection agency a settlement offer if you can afford to pay your debt. You can start with a partial payment plan and/or agree on a monthly payment plan. Get all the agreements in writing.

    If the collection agency bought your old debt for cents on the dollar, you might be able to settle on a sum that’s lower than what you owe.

  2. File for consumer protection – If your creditor or collection agency obtained a judgment against you, chances are you can’t afford to pay your debt. If that is the case, you can stop the legal actions against you by filing for bankruptcy or for a consumer proposal.

    Both the bankruptcy and the consumer proposal provide a legal stay of proceedings. The stay starts as soon as you file for either option. This means that your unsecured creditors and debt collectors are prohibited from continuing or launching their lawsuits. 

If your debt is not past its limitation period, you own assets or have an income that can be garnished, your creditor or a collection agency might obtain a judgement against you. Acting before they obtain it can protect you from garnishment, a bank account freeze, or a lien on your property.

What Is The Minimum Amount A Collection Agency Can Sue You For?

Suing you implies legal fees, time, and manpower, so creditors and collection agencies will not pursue legal charges if the debt is below a certain threshold because doing so wouldn’t be cost-efficient.

Now, each collection agency sets its own thresholds and follows its own rules, so it’s difficult to specify a certain sum they wouldn’t sue for. However, since the costs of filing a lawsuit start at $5000, it’s easy to see why collection agencies are not likely to sue over small amounts.

How Long Can An Agency Collect Debt In Canada?

Debt obligations never expire, so collection agencies could contact you indefinitely. However, the Canadian legislation limits the amount of time a creditor or collection agency has to sue you. That period of time starts from the acknowledgment of the debt, not necessarily the last time you paid your bills, although paying can represent a form of acknowledging the debt.

In Ontario, the local legislation limits legal actions to up to two years.

What If I Already Paid The Debt?

Let your collector know that you’ve already settled your debt. If they still try to coerce you to pay, provide proof such as payment receipts (only copy of receipts, never the original) and mail or email correspondence with your creditor.

If you don’t have documents that could serve as proof, contact your creditor to obtain it.

Where Can You Find Help If An Agency Takes You To Court?

Being taken to court by a creditor can be stressful, scary, and unpleasant. And if you’re not familiar with the process, you risk having your wages garnished or worse. If you don’t want to face this alone, or you need help managing your personal debts, contact one of our Licensed Insolvency Trustees.

Discover the best options to eliminate your debts and have a free financial start. Contact a Remolino & Associates trustee and get a free consultation today.

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