Can A Debt Collection Agency Sue You In Canada?

Posted on December 12, 2023 by Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee

If you are behind in your debt payments, you may be receiving calls from debt collection agencies that can be unsettling. It is not uncommon for a debt collector to threaten legal action if you don’t pay it back by the payment due date. You may be wondering, “Can a collection agency take me to court?” Unfortunately, yes, they can because it is in their legal rights to do so – but it may not be the easiest process or even likely that they will. 

In this article, we will review debt collection in Canada, what happens if you don’t pay a debt collection agency, and the best course of action to stop court proceedings. 

Overview of Debt Collection in Canada

Debt collection is the process through which creditors or debt collection agencies try to recover unpaid bills from borrowers. Debt collection in Canada is governed by particular rules and regulations that promote fair practices and protect consumers’ rights.

The laws for collecting debts in Canada vary by province and territory. Each area has its own rules about how debts can be collected. These rules tell debt collection agencies what they can and cannot do when they attempt to recover debts, so learning about your area’s rules is important so you know your rights and how they protect you.

Individuals or businesses to whom the debt is initially owed are known as original creditors. They may try to collect the debt themselves for some time before hiring a debt collection firm. Debt collection companies, on the other hand, are third-party entities hired by original creditors to collect on their behalf.

Provincial and territorial laws are critical in regulating debt-collecting methods. These regulations may govern permitted communication methods, contact frequency limits, harassment restrictions, and paperwork and proof of debt requirements. Understanding your jurisdiction’s legislation will help you negotiate debt collection issues more effectively.

What Happens If You Don’t Pay A Collection Agency?

You may be thinking, “Will a collection agency sue for $5,000?” If you are unable to pay a debt that has been turned over to a collection agency. The answer is maybe not because they are unlikely to sue over a lower debt amount that is owing since the legal cost that they will incur may not be worth it. 

However, the agency will make an effort to get in touch with you and demand a payment. They could write you letters, call you, or even visit your house to talk to you in person. Occasionally they may even call you at your place of employment.

You may be confused as to why a collection agency is contacting you, as you did not borrow money from them. Nevertheless, the accounts of unpaid debt are obtained by collection agencies through assignments or purchases. Commissions for collection companies average 30% of the debts they collect for the lender.

multiple bills debt

In the worst case, you may find yourself in court. This depends on how much you owe, how long you have been in debt, and other factors. If the debt has been transferred to a collection agency, it is already significantly past due.

However, it’s crucial to know that the likelihood of debt collection agencies actively pursuing the right to take you to court is low, especially if you don’t have a substantial income that can be garnished or own significant assets. 

Debt collection agencies are largely driven by the opportunity to recover debt efficiently and cost-effectively. Suppose they believe the odds of successfully collecting the debt through wage garnishment or asset seizure are limited. In that case, they may choose alternative techniques or focus on more feasible cases.

What If You Don’t Pay A Collection Agency? What Happens Then?

When you fail to pay a debt to a collection agency, they are driven by their financial interest to collect the amount owed. As a result, collection agencies often employ persistent and sometimes aggressive tactics to convince you to pay. These can include making threatening calls, or sending intimidating letters to recover their money.

However, it’s important to note that collection agencies are legally bound to follow the rules and regulations set forth by each province. For instance, in Ontario, the Collection and Debt Settlement Services Act specifically prohibits collectors from engaging in harassment tactics when attempting to collect outstanding debts from debtors.

Under this act, collection agencies are required to adhere to specific guidelines. They must allow a minimum of 6 days to pass between two collection attempts, regardless of whether they contact you via email, voicemail, phone call, or in person. It’s important to note that if the collector calls and you don’t answer, and they do not leave a message, it is not considered a contact. Similarly, letters received through regular mail are also not considered a contract under the act.

These regulations are in place to protect debtors from excessive harassment and to ensure fair treatment during the debt collection process. If you believe a collection agency has violated these regulations or engaged in abusive practices, you have the right to file a complaint with the appropriate regulatory authorities.

It’s essential to be aware of your rights as a consumer and understand the regulations governing debt collection in your specific province. By familiarizing yourself with these laws, you can better protect yourself from abusive collection practices and take appropriate action if necessary. 

Potential Consequences of a Lawsuit

When debt collection companies file a lawsuit to recover unpaid bills, they have legal remedies. Among these remedies is getting a court decision in their favour, which creates a legally enforceable debt. With a court judgment, the collection agency can take additional steps to collect the debt, such as garnishing wages or freezing bank accounts.

The outcome of a debt collection case can vary depending on a variety of circumstances. If the court determines in favour of the collection agency, a judgment against you will be issued, declaring that you are legally required to repay the amount. In such circumstances, you may be obliged to follow a court-approved repayment plan or face additional repercussions.


If the court rules in your favour, the lawsuit may be dismissed, freeing you from the debt obligation. It is crucial to realize that successfully defending against a debt collection action frequently necessitates the provision of proof and legal arguments to support your case.

Furthermore, the outcome of a debt collection case might substantially influence your credit ratings and history. If a court judgment is entered against you, it may be reported to credit bureaus, lowering your credit score.As a result, you may find it more difficult to obtain credit in the future or secure favourable interest rates.

How Can You Stop Court Proceedings?

Before the court procedures intensify, consider reaching a settlement agreement with the collecting agency. A settlement may entail agreeing to a lower payment amount or a more manageable structured payback plan.

Seeking legal advice or consulting with a lawyer can also provide additional guidance and support in dealing with debt collection matters. They can advise you on your legal rights, possible defences, and the best course of action to follow. If it comes down to it, a lawyer can represent you in court, boosting the likelihood of a favourable outcome. This is especially encouraged if you believe the collection agency threatening legal action is engaging in fraudulent practices against you. It is important to consider the cost of a lawyer in your decision.


When settling on a debt reduction plan, it is vital to evaluate all options.  After all, you want to be on the road to financial recovery rather than fall further behind. Evaluate your income, assets, and debts carefully to determine which strategy is best for you.

Chande Debt Solutions helps with debt relief by offering comprehensive and tailored debt reduction services. Our major purpose as Licensed Insolvency Trustees is to assist clients in overcoming financial difficulties and achieving a fresh start.

Call us today at 416-366-3328 or fill out our convenient online form to learn how we can help you recover financially.

Frequently Asked Questions (FAQs)

Can a collection agency sue me for an old debt?

Yes, a collection agency can sue you for an old debt if the statute of limitations has yet to expire. In Canada, the length of the statute of limitations varies by province or territory. In Ontario, the debt statute of limitations is two years.

What happens if I ignore a debt collection lawsuit?

If you neglect a debt collection case, the court may enter a default judgment in favour of the collection agency. This implies they can take legal action to recover the debt, such as wage garnishment or asset seizure.

Can a debt collector garnish my pay in Canada?

Yes, a debt collector can garnish your salary in Canada if they secure a court judgment against you. Wage garnishment rules and limits differ by province or region.

How long may a debt collection agency pursue a debt?

The amount of time a debt collection agency can pursue a debt depends on the statute of limitations in your province or territory. Generally, the statute of limitations spans from 2 to 6 years, depending on the type of debt and jurisdiction.

What are the possible defences to a debt collection lawsuit?

Potential defences to a debt collection case include questioning the debt’s legality, challenging the collection agency’s legal standing, or claiming that the debt has passed the statute of limitations. Consultation with a legal specialist can assist you in determining the best defence strategy for your specific case.

Can a debt collection firm contact my family or friends about my debt?

Debt collection companies are typically barred from contacting your family or friends about your debt, as this can be deemed a violation of your privacy. They are legally compelled to engage with you directly and may only contact third parties to collect your contact information or confirm your whereabouts.

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Mihir Chande
Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee Mike, a Chartered Accountant, began his insolvency career in the Corporate Insolvency and Restructuring group at one of Canada’s largest insolvency firms. After gaining extensive experience, he founded Chande Debt Solutions to offer personalized and empathetic debt relief services to clients seeking an alternative to traditional solutions.

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