Having debts in collections is often a frightening experience, especially if you’re struggling to stay afloat financially.
Debt collection agencies are persistent. While most follow the rules, some carry out dubious debt collection practices in an attempt to collect.
We’ve prepared this guide to help you understand Canada’s debt collection laws, what a collection agency can do to you, and your rights when dealing with debt collectors.
How do debt collection agencies work?
If you don’t pay back a debt on time, your creditor can hire a debt collection agency. Typically, this occurs between 120 and 180 days after you stop making payments.
It’s a collection agency’s job to collect the money owed to the creditor, and they are paid a commission for doing so. You no longer deal with the original creditor, and you must liaise with the collection agency to resolve the debt.
Before your account is transferred to collections, you may receive a written warning notifying you. If this happens, contact your creditor, who may be willing to accept a payment schedule to stop further action.
What can a collection agency do to me in Canada?
When you owe money to a debt collection agency, they will use a range of tactics to recover the money owed, including phone calls, voicemails, text messages, letters and emails.
Initially, you will receive a mailed letter informing you that your account is in collections.
If you ignore a collection agency, they will notify you in writing that they are taking legal action against you. If they get a court order, it can result in wage and bank account garnishments, seizure of assets or a lien against your property.
This pressure to pay is a common strategy from collection agencies to remind you about the debt as much as possible.
Most creditors and collection agencies will threaten court action, even if they don’t intend to. They will only do so if it’s worthwhile after legal fees and your ability to repay.
Debt collection laws in Canada
Canada debt collection laws differ depending on where you live, but you have rights that collection agencies must respect.
A collection agency must be licensed by the consumer affairs office in their province or territory in Canada. They must comply with legislation in their province or territory. Otherwise, they could lose their license or face further action.
Debt collector code of conduct
Debt collectors and collection agencies must follow a code of conduct outlining what they can and cannot do:
- Every time a debt collector contacts you, they must identify themselves.
- They cannot make false or misleading representations to collect a debt.
- Debt collectors may not harass, threaten or intimidate you.
- Debt collectors may not use threatening, profane, intimidating or coercive language.
- Debt collectors may not apply undue, excessive or unreasonable pressure.
How much can debt collectors charge?
A collection agency cannot add any collection costs to the amount you owe other than legal fees and fees for non-sufficient funds on payments you submit.
Can collection agencies charge interest?
A collection agency can charge interest if your contract with the original creditor stipulates this. However, they cannot add additional costs to the amount you owe except for legal fees and fees for non-sufficient funds.
Can a collections agency garnish your wages?
Debt collection agencies can apply for a court judgment to garnish your wages. The amount depends on how much you owe, your income and where you live. A collection agency must take you to court and win before they can do so.
Can collection agencies take money from my bank account?
Collection agencies can withdraw funds from your bank account if they obtain a court judgment against you. A creditor cannot garnish funds from a joint bank account unless they get a judgment against both account holders. The rules can vary depending on where you live in Canada.
Can a creditor take my house?
If a creditor or debt collection agency obtains a court judgment, they can register a lien against property such as your home.
A lien is a legal claim by a creditor to collect what is owed to them. When the debt is paid, the lien is removed. If you do not pay, you could lose your home if a court order allows it to be sold.
It’s important to note that if you have tax debts, the CRA can register a lien on your property without going through the courts.
In the case of mortgages and car loans, creditors can sell the asset attached to the loan without a court order if you fail to make payments.
What times can debt collectors call me?
Debt collection agencies and debt collectors can only contact you during specified hours, Monday through Saturday. In some provinces, they cannot contact you at all.
| Monday to Saturday | Sunday | |
|---|---|---|
| Alberta | 7am – 10pm | 1pm – 5pm |
| British Columbia | 7am – 9pm | 1pm – 5pm |
| Manitoba | 7am – 9pm | Not allowed |
| New Brunswick | 7am – 9pm | 1pm – 5pm |
| Newfoundland and Labrador | 8am – 10pm | 1pm – 5pm |
| Northwest Territories | 7am – 9pm | 1pm – 5pm |
| Nova Scotia | 8am – 9pm | Not allowed |
| Nunavut | 9am – 7pm | 1pm – 5pm |
| Ontario | 7am – 9pm | 1pm – 5pm |
| Prince Edward Island | 8am – 9pm | Not allowed |
| Quebec | 8am – 8pm | Not allowed |
| Saskatchewan | 8am – 9pm | Not allowed |
| Yukon | 7am – 9pm | Not allowed |
The frequency of calls varies depending on where you live in Canada. For example, Ontario debt collection laws state that debt collectors cannot contact you more than three times in seven days without your consent.
How to know if a debt collector call is real? Any calls outside these hours are most likely scammers.
You can ask the collection agency to contact you only in writing, but you must send a written request by registered mail first.
Can debt collectors call on Saturday?
A debt collection agency or debt collector may call you on a Saturday during the following hours:
| Province or territory | Call hours |
|---|---|
| Alberta | 7am-10pm |
| British Columbia | 7am – 9pm |
| Manitoba | 7am – 9pm |
| New Brunswick | 7am – 9pm |
| Newfoundland and Labrador | 8am-10pm |
| Northwest Territories | 7am – 9pm |
| Nova Scotia | 8am-9pm |
| Nunavut | 9am-7pm |
| Ontario | 7am – 9pm |
| Prince Edward Island | 8am-9pm |
| Quebec | 8am-8pm |
| Saskatchewan | 8am-9pm |
| Yukon | 7am-9pm |
Can debt collectors call on Sunday?
If you live in the following provinces, a debt collection agency or debt collector may call you on a Sunday between 1:00 pm and 5:00 pm:
- Alberta
- British Columbia
- New Brunswick
- Newfoundland and Labrador
- Northwest Territories
- Nunavut
- Ontario
If you live in the following provinces, a debt collection agency cannot call you on Sundays:
- Manitoba
- Nova Scotia
- Prince Edward Island
- Quebec
- Saskatchewan
- Yukon
Can debt collectors call me on a holiday?
A debt collector or collection agency cannot contact you on statutory holidays.
Can debt collectors call my friends?
Typically, a debt collector or collection agency can only contact your friends and family to get your telephone number or address.
When doing so, they cannot disclose any information about your debts or personal information, except when that person has guaranteed or co-signed for the debt.
Can debt collectors call family members?
A debt collector can only contact your spouse or a family member to request your telephone number and address.
They cannot disclose any information about your debts or personal information unless that person has guaranteed or co-signed for the debt.
Can debt collectors call my employer?
A collection agency can typically contact your employer once to confirm your employment and get your phone number and address. They cannot disclose any information about the debt or any personal details.
Can debt collectors call my neighbours?
A debt collector can contact your neighbours to request your telephone number and address, but they cannot discuss your debts or personal information.
Can a collection agency take you to court in Canada?
Canadian debt collection agencies can take you to court, but they must notify you in writing first. If a collection agency obtains a court order, this can lead to wage garnishment, seizure of assets, or a lien on your property.
A debt collection agency can only take legal action for a certain amount of time, usually starting from when you acknowledged the debt or last made a payment.
How long can debt collectors try to collect in Canada?
The legal process for debt collection is time sensitive. Although debt collectors can take legal action, they must do so within a specific time limit. In other words, if a debt is too old, it cannot be recovered through legal means.
In Canada, a statute of limitations for debt determines how long a creditor or collection agency can pursue legal action against you regarding an unsecured debt.
The federal statute of limitations on debt collection in Canada is six years, but the time limit for debt collection in Canada depends on where you live.
- Alberta: 2 years
- British Columbia: 2 years
- Manitoba: 6 years
- New Brunswick: 6 years
- Newfoundland and Labrador: 2 years
- Nova Scotia: 6 years
- Ontario: 2 years
- Prince Edward Island: 6 years
- Quebec: 3 years
- Saskatchewan: 2 years
- Nunavut, Yukon and the Northwest Territories: 6 years
Making a payment or acknowledging the debt will reset the limitation period, and the time starts again. This also happens when you don’t inform the creditor of a change of address or telephone number.
What happens after the limitation period expires?
Once the limitations period ends, you still owe the money and are responsible for paying the debt. A collection agency can continue to contact you to collect after the time expires, but they can’t take legal action.
Once the threat of legal action has passed, collection agencies lose their bite and may give up, but they don’t have to. Remember that the debt will remain on your credit report for at least six years.
Can you get out of collections without paying?
Once a collection agency has lost the ability to take legal action, they may give up and stop chasing you for the debt.
How do collections affect your credit score?
Once a creditor passes your debt to a collection agency, it damages your credit score. As a result, you will find it hard to get credit. Even if you are approved, you will pay a higher interest rate.
Whether a debt is paid or not, it will eventually disappear from your credit report. This is likely to happen if you have not paid the debt for seven years or more.
However, ignoring debts in collections will severely damage your credit for many years, and creditors and collection agencies may continue to chase you for the money.
How long do collections stay on a credit report in Canada?
On Canadian credit reports, every record is assigned a credit rating through a series of codes. Lenders use these codes to send information to the credit bureaus about payments.
These codes include a letter that shows the type of credit and a number that shows when you make payments. The best rating is 1, and the worst is 9.
For example, paying your credit card bill on time will be reported as R1 (the best rating). If you have a credit card debt in collections, it is registered as R9 (the worst possible rating).
Debts in collections hurt your credit score and appear on your credit report for six to seven years.
Dealing with a collection agency in Canada
If a collection agency contacts you, you must act as soon as possible. If you want to learn how to settle a debt in collections, follow these steps.
Check that you owe the debt
Firstly, ensure that the collection agency is legitimate and ask them to send proof of that debt. Debt collection scams and illegal practices are common.
Find out how much money you allegedly owe and when the debt was passed from your creditor to the collection agency.
Ask for the following information:
- the agent’s name
- the company or collection agency they work for
- their contact details
- the creditor they represent.
Beware of spam callers and debt collection email scams: Don’t acknowledge that you owe the debt or supply sensitive information.
Tell the collection agency that you’ll contact them once you verify the information is correct. Check your bills and bank statements to ensure that the debt is yours and the right amount.
It’s a good idea to send a written request by registered mail asking for written confirmation of the debt.
Don’t ignore the calls and letters
Don’t ignore calls and letters from a debt collection agency because it worsens things.
Most debt collection agencies have a dialer that automatically calls you, so the calls won’t stop until you answer. You can call them back, but don’t disclose personal information until you know you owe the debt.
If you want the phone calls to stop, you can request in writing that the collection agency stops calling, but this won’t stop further legal action.
If you need help resolving a debt but are anxious when dealing with a collection agency, talk to a Licensed Insolvency Trustee or a non-profit credit counsellor.
Communicate clearly
If you owe the debt and cannot pay it, tell the collection agency your situation. Debt collectors may settle for less than the original balance and might be able to offer a reduced settlement (or freeze interest for a while).
When communicating with a collection agency, stay calm and refrain from being rude or disrespectful. Likewise, collection agencies cannot use threatening, intimidating or abusive language or pressure you to repay the debt.
If you don’t think you owe money, ask for written proof. You don’t need to answer questions or provide personal information.
If you cannot afford to pay collections
If you cannot pay a debt in collections, there are many debt relief programs, such as:
How to pay off collections in Canada
Once you are sure that the debt is yours, you can settle the debt with the collection agency to stop further action. If you cannot pay the total amount, explain why honestly.
Arrange a monthly repayment plan that you can afford, but don’t be pressured into an agreement you can’t keep.
How much can they ask you to pay?
Sometimes, you can negotiate a settlement by offering a lump sum for less than the total amount. Making this partial payment can save you money, and most collection agencies are open to the idea.
Before you pay anything, get an agreement in writing to ensure that you will be released from the total debt upon completing the payments.
How to know which collection agency you owe
You can contact a local consumer affairs office or the Better Business Bureau to confirm that the collection agency is legitimate. Then call the collection agency to make sure they contacted you.
Additionally, check the public records section on your credit report to look for any mention of collections.
Dispute debt with a collection agency
Sometimes, collection action is a mistake, and you may not owe any money.
If someone is trying to collect a debt that isn’t yours or you don’t think you owe the collection agency any money, request proof that you owe the debt. Use a free credit report service to determine if the debt appears there.
If you face court action and want to defend yourself, you can consult a lawyer or a Licensed Insolvency Trustee.
Ignoring the lawsuit will result in your creditors obtaining a court judgment against you, which can lead to wage or bank account garnishments, a lien on your property or additional measures to make you pay.
Where to complain about debt collectors
If you feel that a collection agency has acted against the rules, consider making a complaint to the consumer affairs office in your province or territory.
If you want to complain about a debt collection department or agency for a federally regulated financial institution, contact the Financial Consumer Agency of Canada.
Wrapping up
While dealing with debt collectors may seem daunting, Canada’s debt collection laws dictate what they can and cannot do.
If you’re uncertain whether you owe the debt, request more information in writing. You should not mention that you owe the debt until you know for sure.
Ensure you understand the statute of limitations in your province, so you know how long a collection agency can take legal action against you.
If you feel a debt collection organization has violated any rules, make a complaint immediately.
Lastly, If you need debt collection help, contact a Licensed Insolvency Trustee who can answer your questions.
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