It is not difficult for debt collectors or collection agencies to make anyone feel nervous, especially when they are calling relentlessly and turning up at the door unexpectedly in order to reclaim owed money. As well as stress and anxiety, collections can cause mental health problems and create friction with loved ones who may also be affected by the collection process. If this situation sounds all too similar, you are certainly not alone. The first step to addressing this issue is to understand Canadian debt collection laws. Many collection agencies will think that you will not know your rights, and will therefore push the boundaries to try and reclaim money. By understanding Canadian debt collection laws, you will understand what debt collectors can and cannot do, so that you can handle your debts confidently. In this article, we explain the Canadian debt collection laws as well as what to do if you are being harassed by a collection agency. At Spergel, we have helped over 100,000 Canadians gain debt relief, and we are here to help you too.
Generally speaking, debt collectors or collection agencies in Canada cannot take any legal action against you six years after a debt has been paid or since it was last acknowledged. That said, in some Canadian provinces, there is a shorter Statute of Limitations period. In the table below, we outline the limitation period for each of the Canadian provinces. Do note that some debt collectors will try their luck outside of the limitation period under the assumption that you will not know it exists.
|Canadian province||Limitation period (years)|
|Newfoundland and Labrador||6|
|Prince Edward Island||6|
When will collection agencies give up?
How long collection agencies will chase you for a debt in Canada usually depends on the type of debt and amount that is owed. Debt collectors or collection agencies may decide to give up reclaiming money they are owed if the cost to revenue ratio is not worth it. Equally, they could continue to collect if the debt is large enough to warrant collection, even if the Statute of Limitations period has expired. Even if you are struggling to pay your debts and are not sure how to proceed, you should not avoid a collections agency. You can simply explain your circumstances and work on a repayment plan to gain debt relief. Secured debts can be treated a little differently when it comes to collection. While for unsecured debts, there is a Statute of Limitations determined by the province and a six year rule otherwise, this does not apply to secured debts. In fact, creditors can try to collect from you whenever they like. They may choose to pursue legal action, like a wage garnishment or freezing your bank account, in order to seize an asset. This can also apply to certain unsecured debts, including child support, government debts, and spousal supports – collections for these types of debt can be enforced at any time.
What are the Canadian debt collection laws?
In Canada, federal law controls any debts owed to a federally regulated financial institution (FRFI) – for instance, the CRA – or a third party acting on its behalf. If, however, a debt is sold to a debt collector or a collection agency, the laws of the province or territory will be in force to protect the debtor instead. Each province has its own rules and regulations for controlling how debt collection agencies can operate. This applies to details including the time of day they can call you, and how often they can get in touch with you. In Ontario, for example, the debt collectors must comply with the Collection and Debt Settlement Services Act. Depending on your province of residence, these rules will apply in line with the limitation period.
How should you deal with a collection agency in Canada?
There are a few steps you should take once being notified that a creditor is going to transfer the debt you owe to a collection agency:
- Call your creditor as soon as you can to try and work out an agreement. In this scenario, you want to do what you can to stop the debt going to collection. Debt collection will have a negative impact on your credit report, which can have a knock on effect on things like taking out additional credit when needed. Ignoring collection agencies will not help – they will not go away, and avoiding them could lead to legal action. Being honest about your inability to pay your debts is better than ignoring them.
- If the debt has gone to collections already, you should capture the name of the debt collector, the collection agency, and their contact details.
- Carefully examine the details of the debt, including the total amount owed, the payee, and the start date. It is important that you do not acknowledge the debt until you have gone through all the invoices and bank records to ensure all the details are accurate.
- If you acknowledge the debt, the Canadian government recommends that you:
- Avoid making cash payments
- Ask for receipts or payment statements
- Do not reach out to the creditor directly where possible
- Go through the debt collection agency in charge of the case when making payments
- If you cannot make your payments, you should take the following actions:
- Explain your financial situation to the collection agency
- See if you can negotiate on your payments or agree on an alternative plan
- Follow up on communications in writing
- If you can, make an initial payment to show that you are trying your best to repay your debt
If you prefer, you can ask a debt collector or collection agency to communicate just in writing if you submit a formal request. If you are unsure of how to speak to collection agencies, take a look at our guide on what to say to collection agencies. We also have tips on how to negotiate with collection agencies if you are looking to agree on an alternative repayment plan.
What can debt collection agencies in Canada do?
While debt collectors or debt collection agencies can be keen to reclaim the money they are owed, there are Canadian debt collection laws around what can and cannot be done to contact debtors. By contacting you too much, it could be considered as collection harassment. Harassment could be defined by frequently calling at times when they are not allowed to, abusive language, or threats. While Canadian debt collection laws vary slightly from province to province, regulations to protect debtors from harassment are similar across Canada. Here are some examples of federal debt collection laws:
- Collection agencies cannot contact your family or friends unless they are trying to confirm your contact details. They are not able to discuss the details of your debt unless you provided consent when you signed up to the loan, or unless that person is a cosigner on the debt.
- They cannot threaten you, or use abusive language when contacting you.
- They are not allowed to provide false information, or apply excessive pressure.
- They are not permitted to add additional charges to your debt – only what you initially signed up for. The only exception to this is legal expenses.
- They may not call on vacations or statutory holidays; before 7am or after 9pm Monday to Saturday; or before 1pm or after 5pm on Sundays. In Quebec, they may not call on Sundays at all.
- They are not allowed to call on their cell phones unless they have prior permission
- In Ontario, Alberta, and Nova Scotia, debt collection agencies cannot call you legally more than three times in one week, unless they have prior consent.
If you are receiving communications that go against any of these Canadian debt collection laws, you should contact an experienced Licensed Insolvency Trustee at Spergel. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief, and they are an authority on preventing harassment from collection agencies and can help to mediate breaches of these rules.
In some scenarios, a collection agency can take you to court, although you will not need to spend time in jail for owing overdue debts. If you have outstanding debts, a debt collector or collection agency can file a civil action in court against you. They will likely use this threat in order to encourage you into making your debt repayments. This essentially requests that your wages are withheld in order to go towards your debt repayment. Once they have submitted their case to the court, if successful, they can take action like a pursuing a wage garnishment, freezing your bank account, or placing a lien on your property. If your debt if owed to the government, it can take action without the need to go to court beforehand. It is important to note that debt collectors can only pursue legal action against you within the Statute of Limitations period, although they may continue to threaten you outside of this period.
How to tackle collection agencies
Firstly, you should be careful not to become overwhelmed or scared of debt collection agencies. No matter how bad your financial circumstances, there is always a solution. At Spergel, we are here to help. We have helped over 100,000 Canadians gain debt relief. If you cannot repay your debts, there are a couple of primary pathways in Canada that you can take to gain debt relief.
Filing a consumer proposal
A consumer proposal is a legal form of debt settlement that can reduce your debt by up to 80%. An increasingly popular bankruptcy alternative, it is the process of working with a Licensed Insolvency Trustee to suggest an affordable monthly repayment figure. Your Licensed Insolvency Trustee will negotiate with your creditors on your behalf. If accepted, you will only be committed to make your manageable monthly payments for a period of up to five years. Advantages of a consumer proposal include receiving full protection from creditors, and the ability to keep your assets. At Spergel, we have a 99% acceptance rate on any consumer proposals we file, which means you have a 99% chance of reducing your debt by up to 80% when you file with us.
Bankruptcy is the best pathway to a fresh financial future. In line with the Bankruptcy and Insolvency Act, bankruptcy is the process of assigning any non-exempt assets you may have to a Licensed Insolvency Trustee in exchange for the clearance of your unsecured debts. These will then be sold to go towards the repayment of your creditors. Contrary to popular belief, bankruptcy does not mean you lose everything. Each province has a list of assets you may keep, including a vehicle up to a certain value. Advantages of bankruptcy include full protection from creditors via a stay of proceedings, and full clearance of your unsecured debt. At Spergel, we have been helping Canadians file bankruptcy for over thirty years.
How will debts in collections affect my credit score?
Unfortunately, debt collectors and collection agencies can report any unpaid debts to Canada’s two primary credit bureaus – Equifax and TransUnion – even before a debt goes to court for judgment. Any debts that go to collection agencies will have a negative impact on your credit score. At Spergel, we will help you to rebuild your credit score. By working to gain debt relief, and building up a consistent payment history, you can begin to improve your credit score. Generally speaking, it will take six years to remove an unpaid debt from your credit report. Learn more about how long collections remain on your credit report.
If you want to learn more about your rights and collections, as well as Canadian debt collection laws, book a free consultation with Spergel. Our experienced Licensed Insolvency Trustees will help to answer your questions, as well as to help stop your collection calls, and tackle your debt. We will review your financial circumstances and help you to understand your options for debt relief. Reach out today – you owe it to yourself.