You have been contacted by a debt collector. What now? Here we set out 12 tips for dealing with a debt collector in order to best protect your legal rights.
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Note these tips apply to consumers who are contacted by debt collectors, rather than businesses.
Deal with the creditor first
Usually, the first notification you receive about non-payment will come from the creditor themselves: That is, the person to whom you owe money. If possible, you should try and come to an agreement with the creditor about repayment. If the creditor refers that debt on to a debt collection agency, the costs of collecting increase, and any settlement or payment plan may be less beneficial to you.
In addition, once referred on to a debt collection agency, it becomes more likely that the debt is reported to a credit reporting agency/credit bureau (i.e., Equifax or TransUnion). Once reported, the debt goes on your credit report and affects your credit score.
If you receive a notice from your creditor that the amount owing is about to be transferred to a debt collection agency, you should respond immediately.
Identify who you are dealing with
You may be dealing with the creditor themselves, a debt collection agency or a law firm. Who you are dealing with affects your legal rights and responsibilities. You should also establish where they are located, as the applicable law depends on your province or territory.
If contacted by a debt collection agency, get it in writing
Before you are called by any debt collection agency, you should be notified in writing. If you are called, and you have not been provided with that notice, you should request it. The written notice contains a range of information, including:
- The debt collection agency’s name;
- The name of the creditor, and;
- The amount owing.
In Ontario, the agency must then wait six calendar days after sending that notice before either contacting you, demanding payment or attempting to collect payment from you. Another requirement in Ontario is that the letter contain an attached disclosure statement, informing you of your rights.
If you wish the calls to stop, send a letter requesting that you not be contacted by phone
In most provinces and territories, you are entitled to send a letter requesting that you only be contacted in writing. This should put an end to the phone calls. Note, however, that it may be in your interests to talk to the debt collection agency on the phone. This might result in the most optimal solution for you, and reduce the likelihood of the debt escalating into legal action.
Explain your situation clearly and consistently
Debt collection agencies are paid in different ways. Sometimes they are genuine agents for the creditor and are working on their behalf. In other cases, they have purchased the debt from the creditor so it is now ‘theirs’ to collect. Whichever way they are paid, it is in their interests to optimize payment of the debt which means collecting as much as possible, in as short a time as possible.
This means that debt collection agencies should be open to listening to you and why you cannot pay the full amount. But it is important that your explanation is coherent and you don’t tell conflicting stories to different agents.
If possible, avoid debt being reported to a credit bureau
The creditor or debt collection agency may warn you that if you do not respond, your debt will be reported to a credit reporting agency/credit bureau.
You should do your best to avoid this reporting occurring as negative information generally stays on your credit report, and affects your credit score/rating for 6 to 10 years. This depends on your province/territory and whether the credit reporting agency is Equifax or TransUnion.
Negative information that generally impacts on your credit score includes missed payments, bounced checks, debts sent to collections, ‘judgement debts’ that have gone through the court system, consumer proposals and bankruptcies.
If information has already been reported to the credit bureau, and it is inaccurate, or you otherwise wish to dispute it, you should get in contact with them.
Remember the ‘statute of limitations’
The ‘statute of limitations’ is the time period available for legal action to be taken against you to enforce the debt. The time period depends on the province or territory and the circumstances of the debt. In Alberta, British Columbia, New Brunswick, Ontario and Saskatchewan, the time limit is generally 2 years between acknowledgement of debt and bringing legal action. In other provinces and territories, the statute of limitations ranges between three and six years. Be aware, however:
- Exceptions exist. For example, in Ontario, if there is a judgement debt, the limitation period for enforcing that is ten years;
- Pay attention to the start date. Actions you take may restart the limitation period. For example, if you make part payment of the debt, the two year-period will restart (as that can be seen as an acknowledgement of the debt).
If in dispute, communicate that to the debt collector
If you do not owe the amount in question, you need to tell the debt collector. This might occur, for example, if you have been subject to identity theft, or you have already paid the amount in question. By providing evidence of this to the debt collector, this may be the end of matters.
You can also send a letter to the agency confirming that you dispute the debt, which will mean the debt collectors will stop contacting you for payment. However, they can still bring action against you in court: Whether or not this is likely to occur will depend on the amount that you owe and how easy it will be for them to prove that you owe the amount in question.
If you do owe the debt, consider negotiating with the collector
If you agree that you owe the amount in question, but are unable to pay the full amount, try and negotiate a reduced lump sum payment or a payment plan. For example, if you owe $500, you could propose full and final settlement of $300.
Note, however, that if you wish to pursue this option, you need to get a letter of settlement from the creditor releasing you from legal liability for agreeing to the settlement. Otherwise, there is a possibility that in the future you could get sued for the full amount.
Consult a credit counsellor
Credit counsellors are available to you to provide a range of advice about credit matters. They can provide:
- One-on-one counselling;
- Group courses, and;
- Debt management plans.
To find out more about accessing a credit counsellor see Getting help from a credit counsellor.
In exceptional cases, consider professional advice on making a Consumer Proposal or Personal Bankruptcy
If the amount owed is substantial, and there is no possibility of meeting your payment obligations, you might consider the formal options of a consumer proposal or a personal bankruptcy.
A consumer proposal is a legal agreement that you negotiate with your creditors to repay a portion of the debt owed.
This process does have significant ramifications. It can only be organized by a licensed insolvency trustee, and costs a significant amount to file.
The trustee also gets to retain a proportion of future payments. However, this may lower the ultimate amount of your debt, and will eliminate creditor claims. Therefore, it can be a viable alternative to bankruptcy.
Please note that a consumer proposal does become a matter of public record on your credit report. It may have an impact on employment, licensing and credit options in the future.
In personal bankruptcy, all assets are surrendered to a licensed insolvency trustee. In return, all your debts (in some cases this might exclude secured debts, student loans and child support) are eliminated.
To find out more about consumer proposals and personal bankruptcies respectively, see here and here. Note that either option has serious legal consequences, so you should first seek professional advice.
Make a complaint where the debt collection agency is breaking the law
If you have a complaint to make about the debt collection agency that is contacting you, get in contact with the relevant provincial or territorial Consumer Affairs Office.
For example, you may consider that they have:
- Been dishonest. E.g., they may have threatened to sue you where they knew they had no authority to do so, or;
- Breached the rules for contacting you. E.g., in Ontario they can only contact you between 7 a.m. and 9 p.m. Monday to Saturday and 1 p.m. and 5 p.m. on Sunday.