Can a Collection Agency Sue You in Canada?

Can I Be Sued By a Collection Agency? Unraveling the Truth

Managing a pile-up of debts can be a daunting task, especially when collection agencies are involved. For Canadians, a common question that arises is “Can a collection agency sue you in Canada?” Simply put, the answer is yes. However, the process isn’t straightforward and depends on several factors, such as the size of the debt, the debtor’s assets or income, and the age of the debt. In this comprehensive guide, we delve into the legal rights of collection agencies, the process of being sued, how to defend yourself, and ways to prevent legal proceedings.

The Fundamentals of Collection Agencies

Collection agencies, like any business, require funds to operate. Their primary source of income is the money they collect from individuals who are in debt. They acquire these debts either through assignments from creditors or by purchasing them outright. When a creditor, such as a bank or credit card company, struggles to recover a debt, they may assign it to a collection agency or sell it outright. The collection agency then takes on the task of retrieving the debt, earning a commission or the full amount, depending on the agreement.

Can Collection Agencies Initiate Legal Proceedings?

Yes, a collection agency in Canada can initiate legal proceedings against a debtor. However, doing so is relatively rare and hinges on several factors. Suing a debtor can involve substantial costs, including legal fees and paperwork. Therefore, an agency will typically only choose this route if the potential return is significant.

Circumstances Under Which a Collection Agency May Not Sue

There are certain scenarios where a collection agency may choose not to sue, even if they have the legal right to do so. These include:


Small Debts:
If the debt is minor, the cost of legal action may outweigh the potential recovery. Hence, a lawsuit may not be pursued.

Aged Debts:
If the debt is old and the statute of limitations has passed, the agency may not initiate legal action.

Debtor Residing Overseas:
If the debtor lives outside Canada, the process of suing becomes complex and lengthy, often deterring legal action.

Creditor-Proof Debtors:
If the debtor has no assets or garnishable income, there may be little to gain from a lawsuit.


What if a Debtor Fails to Pay a Collection Agency?

If a debtor defaults on their payments, collection agencies resort to various tactics to recover the debt. These include persistent calls, letters, and even personal visits. However, they must adhere to provincial laws to prevent harassment. For instance, in Ontario, there must be a gap of six days between two attempts to collect payments.

Response to Collection Agency: Ignorance is not Bliss

It’s not advisable to ignore your creditors or collection agencies. Even if you can’t make the payments, maintaining open communication can prevent the situation from escalating. It’s crucial to respond to collection calls and negotiate a feasible payment plan if possible.

Can a Collection Agency Withdraw Money from Your Bank Account?

In Canada, a collection agency can legally garnish your wages. The amount that can be garnished depends on your income, the type of debt, and the province you live in. Consulting with a Licensed Insolvency Trustee can provide clarity on this matter.

Understanding the Court Process for Debt Collection

The court process for debt collection typically involves three stages: initial collection efforts, court proceedings and defense, and pursuing legal recovery options. If the creditor wins the case, they may recover the debt through garnishing your wages, freezing your bank account, seizing non-exempt property, or placing a lien on your property.

How to Respond to a Judgment Against You

If a judgment is issued against you, consider making a settlement offer or filing for consumer protection, such as bankruptcy or a consumer proposal. Both options provide a legal stay of proceedings, prohibiting creditors or debt collectors from continuing or initiating lawsuits.

Can a Collection Agency Sue for Any Amount?

The amount of debt for which a collection agency will sue depends on the agency itself. Given the costs involved in filing a lawsuit, it’s unlikely a collection agency will sue for small amounts.

How Long Can an Agency Collect Debt?

While debt obligations never expire, Canadian legislation limits the time a creditor or collection agency has to sue you. This period starts from the acknowledgment of the debt and varies by province.

What to Do If You’ve Already Paid the Debt?

If you’ve already settled your debt but a collection agency is still trying to collect, let the agency know and provide proof of payment. If they continue their efforts, contact your creditor for verification.

Seeking Help When Faced with Legal Action

Facing legal action from a creditor can be stressful. If you find yourself in this situation, seek advice from a Licensed Insolvency Trustee. They can provide guidance on managing your personal debts and help you navigate the legal process. Remember, understanding your rights and the laws governing debt collection in Canada can empower you to handle such situations more effectively.

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