The Debt Collection Process in Canada

The Debt Collection Process in Canada

Written by Caitlin Wood
Last Updated June 2, 2021

If you find yourself unable to pay back any type of unsecured debt you will more than likely need to deal with a debt collection agent. Credit card companies and other types of lenders who provide unsecured loans employ collection companies to get their money back when their customers stop making regular payments.

Unfortunately dealing with a collection agent is never a pleasant experience and often if you borrowed from a less than reputable lender, your maybe even have to deal with illegal collection tactics. This is why it is imperative that you, as a borrower, must have at least a general idea of what the collection process should legally look like in Canada.

Below we’re going to lay it all out for you, the good, the bad, the legal and the illegal. This article will be a reference for anyone currently going through the debt collection process. We want you to know what your rights are and also what your responsibilities are, because if you’re not going to responsibility pay off your debts there are some consequences that you need to beware of.

What Happens When I Can’t Make my Loan Payments?

The Process: A Step by Step Look

First, it’s important that you understand that debt collectors are regulated on a provincial level. This means that the rules, regulations and laws concerning debt collection vary depending on what province you live in. This being said, in general the process and the specific events that occur should look something like this:

Step 1: First Contact

The first contact you have with a debt collector is usually in the form of a letter. This letter will be a general request that you restart your payment plan. It may also be an explanation that your credit account is now in collection.

Step 2: First Phone Call

5 days after your debt collector sends you the first letter they are legally allowed to call you. If they are unable to get in contact with you or your phone number has changed, your collection agent is legally allow to call your friends, family members, neighbours and employer.

While this may seem like an invasive tactic, collection agents are only allowed to do this for the sole purpose of obtaining your new phone number or new address. No one needs to provide a collection agent with any information; they can refuse to say anything.

Step 3: Proof of Debt

Once your collection agent has gotten in contact with you they must then provide you with the following information in writing:

  • What collection agency they work for.
  • What creditor held the original debt.
  • The date when the debt was transferred from the original creditor to the collection agency.
  • Finally, how much you actually owe.

Step 4: Pay Back the Money you owe

Now that you have all the information you need from your debt collector you should find a way to pay back your debts. While we understand that no one wants to deal with a debt collector and that sometimes they can be insensitive and tough, if you actually owe the money now is the time to figure out how to pay it back.

Step 5: Final Pre-Legal Request Will be Made

If you continue to refuse to pay back your balance, your collection agent will probably make one final pre-legal attempt to get you to settle your account.

Step 6: Initiation of Legal Action

If you still refuse to pay, your debt collector can now pursue legal action against you if they feel that it is worth it. You will receive a notice of legal action at least 21 days in advance.

Step 7: Court Hearing

As part of the legal action being taken against you, you will need to attend a court hearing. If you actually do in fact owe the amount your debt collector is trying to collect, the judge will more than likely sign a Judgment saying that you are now legally required to pay off your debt.

Step 8: Conclusion

Now that there is a Judgment on your debt, your debt collector can garnish your wages. The only way out of paying back your debt is to file for bankruptcy or file a consumer proposal.

Keep in Mind

  • All debt collection claims are unique and may not follow this exact process, but generally speaking this is what you should expect to go through.
  • You can at any point pay off your debts in full and stop the collection process.
  • By making even one payment towards your debt you are taking legal ownership of that debt. You will not be able to dispute this fact in court.
  • Agreeing on a payment plan with your debt collector will eliminate the need to go through the whole collection process and save you a lot of time and energy.

Legal Issues to Look Out For

As we discussed before, the collection process in Canada can at times be quite confusing as each of the 10 provinces and 3 territories all have their own laws put in place to protect both the creditor and debtor. While debt collectors are regulated by the law, there are some that do not follow it (learn how to deal with debt collection scammers here). Here are a few of the most important legal issues you need to be cautious of:

  • While debt collectors are allowed to contact your friends, family members or neighbours if you’ve changed your phone number or address recently, they cannot ask any other questions or conduct themselves in a way that might be interpreted as harassment.
  • A debt collector cannot lie or provide false information to you or anyone you know in order to coerce answers to questions.
  • You must be notified in writing before a debt collector tries to collect a debt or start any legal actions against you.
  • Depending on the province you live in, debt collectors cannot contact you during certain prohibited times.
  • One of the first things a debt collector must do is identify themselves, the company they work for, where your debt is from and the balance you owe.
  • If you claim to not owe any money, your debt collector must take all the necessary steps to figure out what the truth is before they continue to contact you.

We cannot recommend enough that you visit the Government of Canada’s website should you have any specific concerns about dealing with a debt collection agency.

Your Debt, Your Responsibility

Having debt in collection is a serious issue that should not be taken lightly. We understand that financial problems can pop up out of nowhere and that there may be extenuating circumstances that are preventing you from paying off you debts. But ignoring your debts or your debt collector is never a good idea; it’s always in your best interest to deal with these issues head on. Contact your creditor before your account goes into collection or if your account is already in collection, speak with your collection agent right away. If you rightfully owe the money, it’s your responsibility to pay it back.

Need help managing your debt load? Check out this guide to learn more about debt, bankruptcy and other related topics.


Rating of 4/5 based on 27 votes.

Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

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