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Can a collection agency take you to court in Canada?

Posted on 6 October 2022

Written by Colin Boulton

If you find yourself struggling with overwhelming debts, you have likely experienced harassing collection calls and possible threats from debt collectors or collection agencies to take further action against you if you are not able to make your debt repayments quickly. It is an uncomfortable situation none of us want to be in. You may well be wondering ‘can a collection agency take you to court in Canada?’ In simple terms, yes they can. Although it is not the easiest of processes, a creditor is well within their rights to take you to court if you are not making your debt repayments. It does, however, depend on how old the debt is, and whether or not you have an income for a wage garnishment, or any assets that could be sold. In this article, we will answer all you need to know about the ability of collection agencies to take you to court in Canada, and how you can avoid being in this situation.

What happens if you do not pay a collection agency?

Collection agencies are much like any other business – in order to remain in business, they need money to continue to function. What differentiates collection agencies from other businesses is that they require money from people who are in debt. Most often, creditors will assign their debts to collection agencies, who will collect on their behalf. Often, they will get a percentage of the total reclaimed amount, offering them an incentive to aggressively collect on others’ debts. Sometimes, collection agencies will decide to buy debts off creditors who may be struggling to collect their debts, in which case they will take 100% of the reclaimed amount. For this reason, collection agencies can be known to contact debtors to collect old debts, even if the debtor may not have heard about the specific debt for a number of years. Each province has its own debt collection laws, with different statutes of limitation, on what a creditor can and cannot do to a debtor. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief, so they are well placed to advise you on the laws in your province and when a creditor may choose to sue a debtor. Collection agencies will persevere to collect their debts – they will call, send you threatening mail, and even show up at your door. Collection agencies must, however, abide by the law of each province to ensure they are not too harassing. For example, see Ontario’s debt collection laws.

Can a collection agency take you to court in Canada?

A collection agency has the right to take you to court if you have not paid your overdue bills. What you may not know is that this is relatively unlikely, particularly if you do not own any assets, or lack an income that could be garnished. Equally, if the limitation period on your debt has expired, it may be easy for you to build a strong defence case if it goes to court. You will rarely be taken to court if your debt is less than six months overdue. Collection agencies are businesses that want to make a profit, and so they will not spend too much money trying to collect your debt if it is not substantial. Suing a debtor can get expensive – there are extra costs, like those of a lawyer, and in filing the required paperwork. Unless the court proceedings could be worthwhile, it is unlikely a collection agency will take you to court in Canada. While they may make threats, a collection agency is unlikely genuinely going to take action in the following instances:

  • If your debt is small. It is unlikely they will pursue legal action if the value of the unpaid debt is less than the costs of a lawsuit.
  • If your debt is old. They will probably not act if the statute of limitations on your debt has passed. In most provinces, this is a period of two years.
  • If you do not live in Canada. The chances of being taken to court are low, as they would first need to sue you in Canada, and then take the lawsuit to wherever you are living.
  • If you are ‘creditor proof’. This is usually the term given to a debtor who does not have any assets, or an income to garnish. In this scenario, there is not much to gain which can make a lawsuit pointless.

What happens when a creditor takes you to court?

If you have overdue debts that you are not making payments towards, your creditor or collection agency could decide to pursue legal action against you. Typically, your creditors will file the lawsuit with the court, at which point you will be notified. You may decide to file a defense – in this case, a trial date will be confirmed, and both you and your lawyer will attend alongside the collection agency. In this case, two scenarios can occur. Your creditor or collection agency may win, and they will obtain a judgement against you. You will then be ordered to pay some or all of the debt. Your creditor has permission to file a wage garnishment against you, or freeze your bank account. You could also win, in which case no judgement will be awarded. If you choose not to file a defense, your creditors will automatically win the case. If you need defence, you should contact an experienced Licensed Insolvency Trustee immediately.

What action can a collection agency take against you?

Collection agencies can take a number of actions against you. As well as calling you, sending mail, and knocking at your door as initial collection attempts, there are more serious legal actions they may choose to take. Sometimes, they will decide to freeze your bank account so that you are unable to access your funds, and these will be seized to go towards your debt repayments. This action forces you to address your debts in order to gain access to your money once again. They may also decide to pursue a wage garnishment against you. Once granted a court order to do so, a collection agency can ask your employer to send some of your paycheque directly to them in order to go towards your debt repayments. Learn how to stop a wage garnishment. They may also get a Writ of Execution that enables them to seize your non-exempt property to sell it and put the cash towards your debt. They could also decide to file a lien on your property, which you will need to settle before you can sell your property. For any legal action, your collection agency must send you a notice of legal action beforehand, which you may go on to dispute.

How can you stop court proceedings?

Firstly, you should not ignore your creditors or collection agency, no matter how tempting it may be. Even if you just have to explain why you are unable to make your debt payments, you should respond otherwise the situation could get worse. You will likely continue to receive collection calls, but you may be able to organize a payment plan. If your creditor has been issued a judgment against you from the court, there are a few actions you can take:

  • Make a settlement offer. If you can afford to pay your debt, you might want to make your collection agency a settlement offer. This could take the shape of a payment plan or a settlement. No matter the outcome, you should be sure to get the agreement in writing.
  • File a legal form of debt relief. If you cannot afford to pay your debt, you should file a form of debt relief like a consumer proposal or a bankruptcy. Both of these forms of debt relief automatically generate a stay of proceedings. This offers protection from collection agencies and creditors, who can no longer contact you, and any legal action must immediately come to an end.

At Spergel, we have been helping Canadians gain debt relief for over thirty years through filing consumer proposals and bankruptcies. We know how stressful it is to face legal action from creditors, so we put a quick stop to legal action from collection agencies. Learn more about how to stop collection calls.

How to deal with collection agencies

There is no denying the stress that collection agencies can cause you, particularly if you are struggling to make your debt repayments. If collection agencies are on your case, act quickly to stop them taking you to court. The following steps are most commonly taken:

  • Negotiate with your creditors. The last thing you should do is ignore your creditors. You may want to contact them to see if together you can negotiate a payment plan that works for both of you, or perhaps you can offer a lump sum that would reduce your overall debts. Ensure you get any agreements formally captured and documented.
  • Work on a debt settlement. Informal debt settlements are usually led by a credit counselling agency, often for a fee. Although they cannot guarantee any reduction in your overall debt, they may be able to work on securing a payment schedule that works for you, and can work with your creditors on your behalf. Ensure you are using a legitimate regulated agency beforehand.
  • Speak to a Licensed Insolvency Trustee. As the only professionals legally able to file all forms of debt relief in Canada, they are well placed to help you review your options and propose the best method of debt relief for you. Most reputable Licensed Insolvency Trustees will offer a free, no-obligation consultation for you to decide whether or not to proceed.

For more information on ‘can a collection agency take you to court in Canada?’, book a free consultation with Spergel. We know that the idea of going to court is scary, but our experts know Canadian debt collection laws inside out and are here to help you. We will review your options and advise you on the best way to stop debt collection for good, based on your unique financial circumstances. Speak to us today – you owe it to yourself.

Colin Boulton

Colin Boulton

Colin Boulton is a Chartered Accountant and Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also our resident expert on unemployment and wage garnishments and manages Spergel's offices in Eastern Ontario (including Oshawa, Peterborough, Lindsay, Ajax and Scarborough). When not at the office helping clients cross their debt-free finish lines, Colin enjoys training for and participating in triathlons.

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