Can a Debt Collection Agency Sue You In Canada?
Yes, a debt collection agency can sue you for outstanding debt. The process is more complex than the agencies make it seem. They have the right to take you to court for unpaid debt; however, they are unlikely to act on this, especially if you don’t have assets or an income that could be garnished.
If the debt’s limitation period has expired, you might be able to build an easy defense against court action. Still, even if the collection agency decides to act on their right and sue you, you have the right to defend yourself in court, so a lawsuit does not mean the matter is settled.
In this article, we will cover what happens when a collection agency wants to take you to court and how you can stop the court proceedings and stop collection actions.
What action can a collection agency take against you?
There are various actions open to collection agencies. Generally, they will call you and send letters to notify you of your debt to have you pay the outstanding amounts. Some will even go as far as coming to your door to collect in person. However, they also have other more serious legal actions they take.
First of all, for any of these legal actions, the collection agency has to send you a notice of legal action before the move, which you can dispute.
One option is to freeze your bank account, seizing all available funds to cover all or part of the overdue debt. This action forces you to address the issue to gain access to your money again.
Another option is wage garnishment. In this case, the agency obtains a court order that requires your employer to forward a portion of your paycheque directly to the agency to pay off part of your debt.
A third option open to them is a Writ of Execution which enables them to seize non-exempt property, sell it, and put the money towards your debt. The fourth option is to put a lien on your property, preventing you from selling your property without settling the debt.
What Happens If You Don’t Pay A Collection Agency?
A collection agency is a business that needs money to operate and keep things running. In their case, this money comes from people that are in debt. There are two ways in which debt collection agencies can obtain accounts of unpaid debt: Either they buy files or through assignments.
The first way is debt collection agencies buying unpaid debt accounts from lenders. This happens when lenders are no longer trying to collect a debt. In these cases, they will sell these debt accounts to a collection agency willing to buy them and often pay cents on a dollar.
This will transfer the debt ownership to the agency, which will then contact the debtor to collect the money. It mostly happens with very old debt, which is one explanation for you suddenly receiving calls and collection demands after years of no contact.
The second way is when a lender, such as a bank or credit card company, hires a collection agency to collect money on overdue accounts. In these assignments, the collection agency will receive a commission on the debt they can collect, usually 30%.
Can a Collection Agency Take Me To Court?
While an agency has the right to take you to court, they don’t see it as their first option because taking you to court will cost time and money, two things they value very highly. To sue you, they have to pay a lawyer and also spend time to file the necessary paperwork in court, so they generally will only go down the lawsuit route if they believe that taking you to court would be worthwhile.
Generally, collection agencies will likely only threaten to sue you but not follow through on legal action for the following reasons:
- Your debt is too small. In most cases, collection agencies will avoid lawsuits if an unpaid debt is below a specific dollar amount. They won’t think that it is cost-effective to spend almost as much, if not more, on the legal action than they expect to get back.
- You are considered creditor-proof. This means you don’t have any assets or income that could be garnished, so the debt collector could not recover any monies if they took you to court.
- You live outside of Canada. If you don’t live in Canada, you might still receive phone calls from Canada, but it is improbable that a Canadian creditor would attempt to sue you. The main reason is that the creditor would first have to sue you in Canada and then transfer the lawsuit to your current country of residence. This can be complicated and costly, so Canadian creditors generally will not sue you if you live abroad.
- Your debt is too old. While debt obligations technically don’t expire, and collection agencies can try to collect the debt for as long as they want, every Canadian province has a statute of limitation on the majority of unsecured debts, preventing debt collection agencies and creditors in general from successfully taking legal action after a specific period has passed. This is also called time-barred debt because after a certain number of years have passed, it is no longer legally collectible. In Ontario, for example, the statute of limitations is two years, so if a creditor attempts to sue you after the two years, you can file a Statement of Defense saying that the debt is past the limitations period.
So, how often do collection agencies take people to court? Not often. Debt collectors generally will only sue you if they expect to collect more in monies than the fees they incur in legal and court costs.
What If You Don’t Pay A Collection Agency? What Happens Then?
Collection agencies are businesses, so they don’t earn anything if they don’t collect your debt. This means they will relentlessly try to convince you to pay. This can include threatening calls and letters, sometimes bordering on harassing you.
However, collection agencies do have to abide by the rules and regulations of the province they are operating in and follow the laws. In Ontario, the Collection and Debt Settlement Services Act prohibits collectors from harassing debtors to collect their outstanding debts.
This means that collection agencies must wait at least six days between two attempts to contact you for collection, whether by email, voicemail, phone call, or in person. It is important to note that it is not considered contact if you don’t answer your phone when the collector calls and they don’t leave a message. The same goes for letters received by regular mail.
Can You Ignore A Collection Agency?
Generally, it is not a good plan to ignore your creditors. It is recommended to stay in contact with them, even if it is just to explain why you have not been able to make the payments. Consider sending a letter or email explaining your current situation, why you have not been able to make payments and which (if any) payments you can make, and what your plan is. Keep a copy of the letter or email for your records.
Sending a letter or email will most likely not stop the collection calls, but you should answer them and offer some kind of payment arrangement if you can. Keep records and copies of any and all communication with the collection agency for future reference.
The agency may also send you letters urging you to call back within a set period (5 days, 10 days, etc.). Even if you are unable to make the payment, return the call to keep the lines of communication open.
Can You Go to Jail for Not Paying Debt in Canada?
The short answer is “No.” While debt collectors can take you to court, the Canadian justice system does not have any provisions to imprison you for not paying off your debt. However, this does not mean that there are no consequences for not paying your debt. A collection agency can get a court order for garnishment of wages (meaning that a part of your paycheque is sent to the agency until your debt is repaid) or a lien against your property.
Can A Collection Agency Withdraw Money From My Bank Account?
A debt collection agency can obtain a court order to garnish your wages. The amount the agency can garnish depends on your income, your province, and the type of debt you owe. They can also obtain a court order to freeze your bank accounts, meaning that any balance and future deposits will be transferred to the agency to cover the debt you owe.
What Happens During The Court Process For Debt Consolidation?
Generally, debt consolidation processes follow three stages:
1. Initial collection attempts
During this stage, the collection agency attempts to contact you directly to discuss payment options. If an agency buys your debt from a creditor, 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. The agency can call you five days after this notification has been sent.
2. Court proceedings and defence
If the collection agency decides on legal action against you, they are legally required to send you a statement of claim or notice of legal action. You have 21 days to respond and either accept or dispute the claim. If the Statement of Defense is not filed within 21 days or you fail to attend the trial, the court will most probably rule in favour of your creditor.
If you do attend the trial but cannot present an appropriate defence, the presiding judge may sign a Judgement Order. This order states the court’s acknowledgement that you owe the debt and gives the creditor the legal right to collect through other legal means.
3. Pursuing legal recovery options
If the collection agency gets a Judgement Order, they will continue to try to recover the debt. They have several options open to them:
- A garnishment order allows them to garnish your wages and direct a portion of your paycheque to repay your debt.
- Freezing your bank account, allowing them to request your bank to direct the entire balance and all deposits into your account to them.
- Get a Writ of Execution, allowing them to seize any non-exempt property, sell it, and settle the debt. Some unsecured creditors may even attempt to seize your car.
- File a lien on your property that has to be settled before you can sell it.
What If You Have A Judgment Against You? What Can You Do Then?
There are two avenues open to you if the court issues a judgment against you:
1. Make a settlement offer
If you can repay your debt, you can make a settlement offer to the collection agency. In most cases, this would be a partial payment plan or an agreement on a monthly payment plan. Make sure to get all deals in writing.
You might be able to settle for an amount lower than what you owe if the collection agency bought your account for cents on the dollar.
2. File for consumer protection
Chances are that if a collection agency went to court to obtain a judgment against you, you could not pay off your debt. In this case, you can file for bankruptcy or a consumer proposal to stop all legal actions against you.
Both options provide a legal stay of proceedings that begins as soon as you file for either option. The stay means unsecured creditors and collection agencies cannot start or continue legal action against you.
If your debt is within the limitation period, you have an income that can be garnished or your own assets, a collection agency can obtain a judgment order against you. This is why it is essential to act before this happens to protect your bank accounts, wages and property.
What Is The Minimum Amount A Collection Agency Can Sue You For?
There is no set minimum amount. As collection agencies are businesses that aim to make as much money as possible, they set their own thresholds. As the cost of filing a lawsuit begins at $5,000, agencies are very unlikely to pursue legal action over small accounts as the cost of legal fees, time and manpower would eat up most of the money.
How Long Can An Agency Collect Debt In Canada?
While the debt never expires, Canadian law limits a collection agency’s time to sue you. This period begins when you acknowledge the debt, which does not necessarily mean the last time you paid your bills. This could, however, be seen as a form of acknowledgement.
In Ontario, provincial limitation limits legal action to up to two years.
What If I Already Paid The Debt?
If you have already paid your debt, contact the collection agency immediately. Provide them with proof of payment, such as copies of receipts (never send originals) or mail or email correspondence with your creditor.
If you don’t have any proof, contact your creditor to obtain it.
Where Can You Find Help If An Agency Takes You To Court?
Receiving the notification of legal action can be a very stressful and scary situation. Those unfamiliar with the process risk wage garnishments, frozen bank accounts or even worse.
If you need help managing your debt or legal advice, don’t hesitate to contact the Licensed Insolvency Trustees of Risman Zysman.
Risman Zysman has over 45 years of experience providing quality debt solutions. Our team of professionals understands the fears and frustrations of individuals facing financial difficulty. At Risman Zysman, we present each client with a full range of options and guide them to make the right choices so they can move forward.
To find out how we can help you, call us at 416-222-4600 and get a free, confidential, no-obligation consultation today! Risman Zysman can help you on the road to financial recovery.
How to Deal with Collection Agencies in Canada
Creditors can take you to court if you have stopped making payments. To stop the process, you can follow one of the following steps:
- Talk to a Licensed Insolvency Trustee. In a free, confidential, no-obligation meeting, a Risman Zysman Licensed Insolvency Trustee can help you review all possible options and arrive at the best solution for your situation. All Licensed Insolvency Trustees are regulated and licensed by the government.
- Talk to your creditors. Sometimes, taking steps to arrive at a payment plan that can work for both sides is enough to stay proceedings.
- Make a debt management plan. You can talk to a credit counselling agency that can help you through the process. Important note: In most provinces, credit counselling agencies are not regulated and don’t have to be licensed.
Speak to one of our Licensed Insolvency Trustees to learn how we can help you with your debt recovery.
Collection Agency FAQ
Can a collection agency take my house?
When a collection agency gets a judgment against you, it can use the resulting Judgement Order to register a lien against your property. You have to pay off this lien before you can sell your property. If you don’t pay your judgment, the agency can also file for a Writ of Execution, allowing them to seize any non-exempt property, sell it, and settle the debt.
Depending on provincial regulations, creditors such as banks and finance companies can seize property on which they hold a defaulted mortgage without a court process. Canada Revenue Agency also is legally entitled to apply a lien against your property for unpaid taxes without a court process.
Can collection agencies garnish wages?
If the agency has obtained a court judgment against you, they can file for wage garnishment. The amount they can garnish and how that garnishment will be handled depends on what type of debt you owe, where you live, and your income.
Speak with a Licensed Insolvency Trustee to learn how much money could be garnished from your wages and how to stop it.
Can collection agencies charge interest in Canada?
No, a collection agency cannot charge new interest on the debt they are attempting to collect.
