Can a collection agency sue you in Canada? The short answer is yes, and it could go something like this:
You’re sipping coffee at your kitchen table and planning for the day ahead. Suddenly, there’s a knock at your door. You open the door and a man asks in a stern voice, “Are you Mrs. Jones?” You reply with a nervous “yes” as he hands you an unmarked envelope. “You’ve been served,” he announces, and then turns on his heel and walks away.
Uncertain of what just happened, you open the envelope. It’s a notice of debt indicating you have been served with a Statement of Claim and you are being sued for credit card debt that hasn’t been paid in quite some time. Panic starts to set in.
What do you do now? We’re here to answer your burning questions!
When Will a Creditor Take You to Court?
A creditor rarely uses legal action as a first attempt to collect an outstanding debt. There are usually many warnings ahead of being sued, mostly in the form of collection calls and letters. If you are taken to court, it can be by a collection agency acting on behalf of a creditor.
Can I Ignore a Collection Agency?
It’s never a good idea to ignore creditor communication. Always keep in touch, even if it’s just to explain that you can’t make your payments and explain why. You may also consider writing a letter or email explaining your situation, what you expect to happen, and what payments (if any) you can make—and always keep a copy for your records. You will likely continue to receive collection calls, as unpleasant as they may be, but it’s better to answer them and offer a payment arrangement if possible. Keep a log of your communication with the creditor, so you can reference the conversations as well. You may also get letters marked URGENT, stressing a call back within a set time frame (e.g. 10 days). Return the creditor’s call so they’re aware that you’re trying to keep the lines of communication open.
What Happens If You Don’t Pay a Collection Agency?
Collection agencies can be relentless. They will call, write letters, and sometimes worse in order to try to collect a debt. (After all, they don’t get paid unless you pay up.) But they must operate within the law and abide by the rules and regulations set forth by each province. For example, in Ontario, there is the Collection and Debt Settlement Services Act, which prohibits entities from harassing consumers in order to collect outstanding debts, whether they owe the debt or not. But if you ignore the collection attempts or refuse to make payment arrangements, you may be taken to court. Learn more about debt collection calls in our blog What Can Debt Collection Agencies Actually Do in Canada?
What Is the Minimum Amount That a Collection Agency Will Sue For?
Taking someone to court involves legal fees, time, and manpower, so some creditors and collection agencies might not pursue a court case if the debt is below a certain dollar amount; it simply might not be cost-effective. In fact, according to a recent survey of Canadian lawyers, it can cost upwards of $10,000 to file a lawsuit. So, you can see why some creditors might be hesitant to sue over small amounts.
How Long Can a Collection Agency Collect on a Debt in Canada?
Technically, debt collection can continue indefinitely (as long as it doesn’t constitute harassment, which is prohibited as per the Fair Debt Collection Practices Act of Canada). However, Canadian legislation sets a statute of limitations in Ontario and other provinces regarding the amount of time a creditor has to sue you. In Canada, the time starts from the acknowledgement of the debt, not necessarily the last payment date. (Although a payment can be a form of acknowledging the debt.) This time frame varies by province:
- 2 years from acknowledgement of debt: Alberta, British Columbia, New Brunswick, Nova Scotia, Ontario, Saskatchewan
- 3 years from acknowledgement of debt: Quebec
- 6 years from acknowledgement of debt: Manitoba, Newfoundland, Labrador, Prince Edward Island, the territories
Some collection agencies will continue to try to collect long after the statute of limitations for suing has passed because many people don’t know about it. If you let them know that you’re aware that they can no longer recoup the money, it’s likely they will give up. If they don’t and you feel they are breaking collection laws, you can file a complaint with the consumer protection office in your province.
What Happens When a Debt Collector Sues You?
After you’ve been served, you will have the opportunity to file a Defence. This means that you’ll need to go to the Court House listed on the Statement of Claim and File a Defence within 20 calendar days of being served. If you choose not to file a Defence, this means that you have opted to accept the charges against you which you do not want to dispute, meaning you will own up to your debt. The creditor will be awarded a Default Judgement and this can result in a lien or seizure of an asset or wage garnishment.
To file a Defence, you will need to file a Form 9A (Defence) and attach all supporting information. In this form, you can admit that you owe the full amount of the claim, or part of the claim, and propose a payment arrangement. For example, you can admit to owing the balance of $5,497 and agree to make monthly payments of $300 until the balance is paid off in full. You’ll also need to pay the filing fee and monitor your mail for any correspondence from the Court House. Be sure to always verify the next steps in the process with the Court Clerk when filing a Defence.
Where Can You Find Help If a Collection Agency Takes You to Court?
The following professionals will be able to provide you with guidance and support during the court process:
- A Certified Credit Counsellor. As a not-for-profit credit counselling agency, Credit Canada's Credit Counsellors can review your situation and help you understand your full financial picture, free of charge. We will also guide you towards different options, such as debt consolidation, that will help you move forward without having to resort to bankruptcy.
- Small Claims Court Duty Counsel Services. These are pro-bono lawyers who help low-income individuals wanting to represent themselves in court; however, you must meet specific criteria to acquire their services.
- A Paralegal/Lawyer. For a directory of qualified professionals, you can visit the Law Society of Upper Canada.
- Legal Aid. Free legal aid may be available for low-income individuals.
- JusticeNet. This not-for-profit service helps people in need of legal expertise, but whose income is too high to access legal aid and too low to afford standard legal fees. JusticeNet is currently available to anyone living in Ontario. Visit their website for more info.
Being taken to court by a creditor can be scary and intimidating, especially if you don't know the process or what to do next, and the result can be wage garnishment (which is when collection agencies take money from your bank account). Remember, the best way to avoid collection agencies is to make at least the minimum payments on your debts on time. If you can’t do that, speak to your creditors and let them know of your situation. Try to work out a payment arrangement; they usually prefer to get something versus nothing—just be sure to get the agreement in writing! If you don't want to face this alone or feel you simply can’t manage your personal debts and need some extra help, Credit Canada is here standing by. Give us a call at 1.800.267.2272. All our counselling is free!
About the Author
Newcomers & Money 101 Guidebook
Credit Canada Debt Solutions developed a guidebook on basic personal finances for newcomers to Canada, in partnership with the Ministry of Citizenship and Immigration.