How Does Debt Collection In Canada Work?

All the details you need to understand debt collection in Canada, how it works, and what your rights are. Learn more.
Bruce Hodges
May 2, 2024
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Table of Contents

How Does Debt Collection In Canada Work?

Debt collection can be a challenging and stressful experience for anyone who finds themselves in financial distress. Whether it's due to unpaid loans, credit card debt, or other outstanding obligations, debt collectors and collection agencies can be relentless in their pursuit of reclaiming owed money. In Canada, debt collection is governed by specific laws and regulations to protect consumers from unfair practices.

This article will provide a comprehensive overview of the debt collection process, the role of debt collection agencies, and the legal framework surrounding debt collection in the country. We will also explore the rights and protections available to consumers, strategies to deal with debt collectors, and the impact of debt collection on credit scores.

Whether it's negotiating payment arrangements, exploring debt relief options, or seeking professional financial advice, knowing your rights and obligations can help you regain control of your financial situation and work towards a debt-free future.

Understanding Debt Collection in Canada

Debt collection in Canada often involves the efforts made by creditors or third-party collection agencies to collect outstanding debts from individuals or businesses. When a debt is in collections, it means that the original creditor has transferred the responsibility of collecting the debt to a third party, such as a collection agency.

The Role of Debt Collection Agencies

Debt collection agencies play a crucial role in the debt collection process in Canada. They act as intermediaries between the creditor and the debtor, working to collect outstanding debts on behalf of the original creditor as their primary goal. They may employ various strategies, including phone calls, letters, and negotiations, to collect the debt. In some cases, collection agencies may resort to legal action, such as filing a lawsuit, to compel the debtor to repay the debt in provinces such as Ontario, Alberta, and Nova Scotia.

Legal Framework Governing Debt Collection

Debt collection in Canada is governed by a legal framework that outlines the rights and responsibilities of both the debtor and the creditor. The laws vary slightly from province to province, but there are overarching regulations that apply nationwide.

When a debt goes into collections, the creditor or collection agency has the option to take legal action against the debtor. This may involve filing a lawsuit to obtain a court judgment and potentially enforce repayment through wage garnishment, bank account seizure, or other means.

However, there are limitations on how long a debt collector can pursue legal action. The statute of limitation sets a time limit, also known as a limitation period, within which legal action must be initiated. Generally, in Canada, debt collectors (including the CRA itself) cannot take legal action against a debtor six years after a debt has been paid or since it was last acknowledged. Understanding the legal framework governing debt collection, including the limitation period, is crucial for both debtors and creditors.

It's important to note that debt collection laws also apply to federally regulated financial institutions, such as banks and credit unions. These institutions must adhere to specific rules and regulations when attempting to collect outstanding debts.

The Debt Collection Process Explained

The debt collection process in Canada typically begins with the initial contact from the collection agency or debt collector which can be made through phone calls, letters, or emails. The purpose of the initial contact is to inform the debtor of the outstanding debt and initiate the collection process.

Once contact has been established, collection agencies may continue to make collection calls to the debtor. These calls serve as reminders and attempts to negotiate a payment arrangement. The debtor has the option to negotiate a suitable repayment plan with the collection agency, which may involve installment payments or a lump-sum settlement.

How to Verify if a Debt Collector is Legitimate

It is important to verify the legitimacy of a debt collector before providing any personal or financial information! Here are some steps you can take to ensure you are dealing with a legitimate collection agency:

  • Ask for the name of the collection agency, the creditor they are representing, and their contact information.
  • Contact the original creditor directly to confirm if they have indeed transferred your debt to a collection agency.
  • Check if the collection agency is licensed to collect debts in your province. You can do this by contacting your province's consumer protection authority or checking their website.
  • Review your credit report, which may provide information about the collection account and the agency associated with it.

By verifying the legitimacy of a debt collector, you can protect yourself from potential scams or fraudulent collection practices, which are unfortunately common nowadays.

What Happens When a Debt Goes to Collections?

When a debt goes into collections, it can have significant long term implications. Here are some key points to consider if you're currently in this position:

  • The debt may be reported to credit bureaus, which can impact your credit report and credit score.
  • You may receive multiple collection calls and letters from the collection agency.
  • Failure to address the debt can result in legal action, such as a lawsuit filed by the collection agency.
  • Unpaid debts in collections can lead to wage garnishment or bank account seizure.
  • A low credit score can make it difficult to obtain credit in the future.

If your debt has gone to collections, it's important to address it promptly and minimize the negative impact on your credit score and financial well-being in the long term.

Rights and Protections for Consumers

As a consumer in Canada, you have certain rights and protections when dealing with debt collectors. These include:

  • Protection against abusive language, threats, or harassment from collection agents. They are required to conduct themselves professionally and within the bounds of the law.
  • The right to request written confirmation of the debt, including the amount owed and the original creditor.
  • The option to negotiate a consumer proposal, which is a legally binding agreement between you and your creditors to repay a portion of the debt over a set period.
  • The ability to request that collection agents only communicate with you in writing, which can help reduce the stress and frequency of collection calls.

Responding to Unfair Debt Collection Practices

If you believe you are being treated unfairly by a debt collector or are experiencing abusive practices, you have the right to take action. Here's what you can do:

  • Keep detailed records of all interactions with the collection agency, including dates, times, and any abusive language or threats used.
  • File a complaint with your province's consumer protection authority, providing them with the evidence and details of the unfair practices.
  • Consult with a lawyer or seek legal advice if the collection agency continues to engage in illegal practices.

Remember, debt collectors are legally required to follow specific guidelines and regulations when attempting to collect a debt, and you have the right to be treated fairly and respectfully throughout the process.


Understanding debt collection in Canada can help you navigate the process, pay off your debt, and avoid some of the harsh consequences of debt. While debt collection agencies are legal and play a role in society, consumers also have rights they need to be made aware of in order to effectively advocate for their financial well-being. With the information we've outlined above, we hope individuals can go through the collections process with a little more confidence, and eventually reach their debt-free goals!

Bruce Hodges
Bruce, Founder and CEO of Parachute, worked for several of Canada’s top Banks, published research for the Canadian Bankers Association, and taught E-commerce Strategy in Wilfrid Laurier University’s MBA program. His first start-up built credit solutions for the likes of National Bank, Fair Isaac, and Ford Credit globally. Prior to starting Parachute, Bruce was COO of Foresters Financial, and EVP Transformation at CIBC, one of Canada’s top 5 banks. Bruce founded Parachute to disrupt the financial wellness space taking on payday, and high interest predatory lenders, with the intent to bring at risk Canadians back from the brink to good financial health.
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