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What happens if you don’t pay a collection agency?

Posted on 7 August 2022

Written by Alan Spergel

Collection calls can be extremely stressful, particularly when you feel harassed and pestered. Struggling with overwhelming debts can be difficult enough without receiving collection calls from collection agencies or debt collectors. Thankfully, there are ways to handle collection calls. If the debt is truly one that you owe, if you do not pay the collection agency, there could be severe consequences for you. This ultimately depends on a few factors – how long you have had the debt, and how much you owe, for instance. By the time your debt has been handed over to a collection agency, it is likely well overdue. So, what happens if you don’t pay a collection agency? In this article, we explain why collection agencies call, what to do when they call, and how likely it is that they will take further action if you do not respond to collection calls and pay your debt.

Why am I getting collection calls?

Typically, there are two common ways in which collection agencies get involved in trying to collect your debt. The collection agency will have either been assigned the debt from a creditor, or they may have purchased the debt. When a debt is assigned, the collection agency has been contacted by one of your creditors to try and collect the debt. They have accepted this responsibility. This often happens for payday loan lenders or credit card companies. If the collection agency is successful in reclaiming the funds from you, most of the collection will go to the creditor, but they will be able to keep hold of a percentage as their fee for collecting. Alternatively, the collection agency may have purchased the debt. This means that they have essentially bought the debt from your creditor. This means you no longer owe the creditor anything, and you instead owe the collection agency. The collection agency must inform you of this change. It is important to note that your credit score will be impacted from the debt owed to the original lender, as they will have written it off as a bad debt. As the debtor, it does not make much difference to you whether the collection agency has been assigned the debt or purchased it – they will still try to collect the debt.

What should I do if a collection agency calls?

It is always tough to answer a call from a collection agency, particularly when you were not expecting it. Sometimes, collection calls are legitimate calls from debt collectors or agencies attempting to collect funds that you owe, but sometimes unfortunately they can be scams. When it comes to what to say to collection agency calls, the first thing is to try not to be upset about the call. It is not personal – merely a business trying to reclaim the money they are owed. If you are not able to talk or need to consider the situation, you can ask the collection agency to call back another time. Alternatively, you could ask them questions about the situation so that you can gather all the information you need. Here are a few steps you should take if a collection agency calls:

  • Ensure you actually do owe the debt that the collection agency is calling about. Unfortunately, scams do exist so you need to ensure you do actually owe the debt. Debt collection agencies legally need to notify you in writing before they begin calling you, so ensure you have received a letter first. A credible collection agency will also ensure to identify itself and the company they are collecting on behalf of. It is likely a scam if they ask you to make a payment over the phone, or if they ask you to mail pre-paid cards, as legitimate collection agencies will not ask for this. If you believe it is a scam and you do not owe the debt in question, you can ignore the call.
  • If you owe the debt, you can pay it. If you know you owe the money the collection agency is referencing, you may have the funds to pay off the debt. Once the payment is received by the collection agency, the debt will be closed and you will no longer receive any calls about the debt.
  • If you owe the debt but can’t pay it, contact a Licensed Insolvency Trustee. Not all of us have the funds readily available to repay our debts, or we find ourselves with spiralling debts that are becoming more and more overwhelming. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. If you file either a consumer proposal or bankruptcy, as well as reducing or eliminating your debt, a stay of proceedings will be triggered. This ends any collection calls immediately and offers you full protection from your creditors.

What are the laws on collection calls?

You likely have a lot of questions about collection agencies and their efforts in reclaiming the money they are owed. For example, are collection agencies allowed to call you at work? When do collection agencies give up? Thankfully, there are some rules in place that debt collectors in Canada must follow:

  • Debt collectors or collection agencies may only call you Monday to Saturday from 7am to 9pm, or Sunday from 1pm to 5pm
  • They may not call you on holidays
  • They can contact your family, friends, or employer but only to get hold of your phone number
  • They may not use abusive language, harassment, or threats
  • They cannot pressure your friends or family to pay your debts for you

What happens if you don’t pay a collection agency?

Depending on the nature of your debts, there are a number of different consequences if you do not pay a collection agency. We have listed out some of the potential outcomes below.

  • If your debt is very small (say less than $1,000), if their legal costs are likely to cost more, it is unlikely that collection agencies will pursue legal action against you. They could still threaten legal action or send a letter from a lawyer in order to encourage you to pay your debt.
  • If your debt is old, you may not legally owe the debt any more if the time period in your province’s Statute of Limitations has passed. Some collection agencies will choose to ignore these timelines in a hope to collect your debt. That said, if they took legal action against you, they would be unlikely to win. A Licensed Insolvency Trustee is perfectly positioned to help you figure out the Statue of Limitations for your province.
  • If you have a low income and minimal assets, you may be what is considered to be ‘creditor proof’. This is because they cannot realistically expect to collect much from you. In this scenario, you may well confidently ignore collection calls. Even if you were taken to court, there is not a lot they can collect from you. Before you choose to ignore calls, you need to ensure you are safe from creditors by confirming with a Licensed Insolvency Trustee.

In all these scenarios, collectors are likely to continue calling. Unless they feel there is no way you will pay the account, collection agencies will continue to try and contact you unless the debt is resolved once and for all.

Does debt collection affect your credit score?

The simple answer is yes, your credit score will be negatively affected by collection agencies. When your debts are so overdue that they are either assigned or purchased by a collection agency, the credit bureaus are made aware of this. This has a negative impact on your credit rating as a consequence. Debts put in collections are assigned as a R9 rating on your credit report, which is the same rating given to a bankruptcy. If, however, you handle your debts and are able to make regular payments, your credit score will improve over time. This is because lenders will submit more positive information for your credit score.

What if a debt collector takes legal action against you?

If a debt collector or collection agency chooses to pursue legal action against you, you will receive a Statement of Claim by mail or a person known as a process server. Depending on your province of residence, you will be given a timeframe for response. You can choose to reply to the Statement of Claim if you wish. If you respond, you or your lawyer will file a Statement of Defence. They may also attend a court date to pursuade the court that you do not owe the amount of debt referenced. If you do not respond to the Statement of Defence, or if you do not succeed, the court will find your creditor in favour. Once your creditor has secured a judgment against you, they can move ahead with a number of activities. They may wish to pursue a wage garnishment against you, freeze your account, or seize some of your assets to try and collect the money needed to go against your debt.

What if I can’t pay my debts?

If you are feeling overwhelmed by unmanageable debts, the good news is that no matter how bad you may think your financial situation is, there is always a form of debt relief to help reduce or clear your debt. The first thing you should do is book a free consultation with a Licensed Insolvency Trustee. They are trained and experienced in reviewing your financial circumstances and advising you on the best form of debt relief for your situation. These often include:

At Spergel, our Licensed Insolvency Trustees have over thirty years’ experience of helping Canadians on their journey to debt relief. Unlike other bankruptcy firms, you’ll be assigned your own trustee to walk you through each step of the process instead of passing you from person to person. Book a free consultation today to get on the pathway to a fresh financial future.

Alan Spergel

Alan Spergel

Alan Spergel is the founder and President of Spergel. A leader in our industry, he is also a former chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) and has served on Canada's Superintendent of Bankruptcy Management Board. He actively supports multiple charities, ensuring that Spergel gives back to our communities and has recently been appointed as Chairman of the Board of the Humber River Hospital Foundation. Outside of the boardroom, you can find Alan playing golf, tennis, or skiing and enjoying quality time with his grandchildren.

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