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Most of us carry some form of debt, be it on a credit card, line of credit, or auto loan. And while a little bit of debt is always manageable, you may find yourself in a situation where keeping up with payments becomes challenging and frustrating. Sometimes you may have no choice but to default. In this scenario, your creditor may choose to sell your debt to a collection agency, as they’ve decided chasing payment is no longer feasible.
Collection agencies have been known to be intense, persistent, and, at times, downright abusive. Therefore, it’s crucial to be aware of what they legally can and can’t do when they pursue you to pay back your outstanding debt. Collection fees are a prominent concern – can a collection agency charge you additional fees on top of the debt you owe?
What Happens When Your Debt Is Sold To A Collection Agency?
A debt collection agency is a company that specializes in past-due debts. Creditors will often hire a collection agency to act on their behalf after they’ve failed to collect past unpaid debt on their own. Sometimes, a creditor will sell a borrowers’ debt directly to a collection agency. If you fail to make your debt payments, a debt collection agent may contact you to collect the money you owe.
A collection agency that has purchased the debt from your creditor can take you to court. If the agency wins the judgement against you, they can garnish your wages or take money directly from your bank account. They can also place liens against your assets, such as your home. If you fail to pay the outstanding debt, they can legally take possession of your home and sell it, using the cash proceeds to settle the debt.
Learn more about what your collection agency can do to you.
Can A Collection Agency Charge You Collection Fees?
A collection agency is prohibited from charging you any collection-related fees on top of the amount you owe. Don’t be fooled by agencies that attempt to legitimize and rationalize any additional charges – they have no right to do so.
However, a collection agency has the right to force you to cover their legal expenses. Also, they can charge you fees for non-sufficient funds on payments you submit.
Can A Collection Agency Charge Interest On Your Debts?
No, a collection agency can’t tack on any new interest charges on your debt. However, they can seek payment for any interest charges levied by the creditor.
Know Your Rights
You may feel a sense of unease upon discovering that your debt has been sold to a collection agency, dreading hostile collections agents and endless pressure tactics. Luckily, governments have been cracking down on collection agencies’ practices and have drafted explicit guidelines to regulate their conduct. Particularly for debt collectors from a federally regulated financial institution.
Here’s what your debt collector is not legally allowed to do:
- Debt collection agencies must conduct themselves in a professional, respectful, and ethical manner. They’re not permitted to use harsh language or employ unreasonable methods to persuade you to pay your debt.
Is your debt collector harassing you? Find out how to stop collection harassment in Canada.
- Debt collection agents may only call at designated times during the day (Monday through Saturday between 7:00 a.m. and 9:00 p.m. Sundays between 1:00 p.m. and 5:00 p.m.). They can’t call you on statutory holidays and can’t disclose your financial details to your family, friends, or employer (though they’re permitted to contact them to obtain your phone number and mailing address).
- Collection agencies have a limited timeframe in which they can act to collect payment from you. In Canada, the statute of limitations is six years from the time you default on your debt. Any time you make a payment toward the debt or formally acknowledge it, the timeframe resets.
- Each province also has its own statute of limitations, which ranges from two to six years. To figure out which statute of limitations applies to your debt, you need to determine whether the legislation governing your debt is provincial or federal in nature.
Despite regulations in place to curb collection agencies’ tactics, some organizations blatantly ignore the rules and employ coercive methods to collect unpaid debt. If you feel mistreated by debt collectors, remember that you have rights as a consumer – you can directly address the abusive behaviour. If the collection agency was hired by a federally regulated financial institution, you could submit a complaint with the Financial Consumer Agency of Canada. In cases where your creditor sold your debt to a collection agency, you can file a complaint with your provincial Office of Consumer Affairs.
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