When Do Debt Collectors Take You to Court in Canada and How to Stop Them

By Julien Brault, founder of MooseMoney.

Yes, debt collectors can take you to court in Canada, but they rarely do it. Legal action typically follows months of ignored collection calls and letters, and creditors generally only sue when the debt is large enough to justify legal costs, you have assets or income that can be seized, and the debt falls within your province's statute of limitations. If you are already facing collection pressure or a lawsuit, you have several options to respond, negotiate, or stop the process entirely.

Creditors weigh the cost of litigation against the likelihood of recovering what you owe. Filing a lawsuit in Canada can cost upwards of $10,000 in legal fees, so many collectors will not pursue court action for small balances. When they do sue, the claim can come from the original creditor's internal collections department, a third-party collection agency acting on the creditor's behalf, or a company that purchased the debt outright. 

It Might Be Too Late For Them To Sue You

The statute of limitations plays a critical role in whether a collector can sue you. In Alberta, British Columbia, New Brunswick, Nova Scotia, Ontario, and Saskatchewan, creditors have two years from the date you last acknowledged the debt to file a claim. In Quebec, the window is three years. In Manitoba, Newfoundland and Labrador, Prince Edward Island, and the territories, creditors have six years. 

If a collector contacts you about a debt that is past the limitation period, avoid engaging with them, since they lost the legal right to enforce repayment through the courts. However, if you make a payment or confirm the debt in writing, the limitation period restarts. Some collectors will continue calling long after the limitation period has expired, counting on the fact that many Canadians do not know these rules. You can inform them that the limitation period has passed and request that they stop contacting you.

If a collector ever threatens you with a prison sentence, he’s either lying to you or, more likely, he’s trying to scam you. In fact, you cannot go to jail for failing to pay consumer debt in Canada and making such threats is among the things collectors are not allowed to do in Canada. However, if a creditor wins a court judgment against you, the consequences can still be serious. A court can authorize wage garnishment, seize funds from your bank accounts, or place a lien against your property.

How to Respond If You Are Sued

If you are served, you generally have 20 calendar days to file a defence at the courthouse listed on the claim. Failing to respond means the court can issue a default judgment in favour of the creditor, which gives them the authority to garnish your wages or seize assets without further input from you.

To file a Defence in Ontario, you submit a Form 9A along with any supporting documents. In your Defence, you can admit to owing all or part of the debt and propose a payment arrangement. For example, you could acknowledge a $5,000 balance and offer to pay $250 per month until it is cleared. You can also demand that the creditor provide evidence tying you to the debt. If the debt has already been paid, you should provide proof of payment. If the statute of limitations has expired, you should raise that in your defence. 

If you cannot afford a lawyer, there are resources available. All provinces offer pro bono assistance to low-income individuals representing themselves. In Ontario, if you earn less than $45,440 per year, you could be represented for free through Legal Aid Ontario. And there often other resources for people who do not qualify. In Ontario, JusticeNet helps people whose income is too high for Legal Aid but too low to afford standard legal fees. 

How to Stop the Legal Process Before It Starts

The most effective way to prevent a lawsuit is to engage with your creditors before the situation escalates. Ignoring collection calls and letters increases the likelihood that a creditor will pursue legal action. If you cannot pay the full amount, contact the creditor or collection agency and propose a payment arrangement based on what you can realistically afford. Always get any agreement in writing before sending money.

If your debts are unmanageable, formal debt relief programs can halt or prevent legal proceedings. A consumer proposal, filed through a Licensed Insolvency Trustee, provides a legal stay of proceedings that stops creditors from suing you or continuing any existing lawsuits. Bankruptcy offers the same legal protection. A debt management program arranged through a non-profit credit counselling agency is another option, though it does not carry the same automatic legal shield.

Jeff Schwartz, Executive Director of Consolidated Credit, explains the nuance well. "A debt management program won't stop a legal process that is already in process. But depending on the creditor, they may look at it and pull back from the legal process, since the consumer is more likely to repay the debt with a credit counseling agency," says Schwartz. This means that while a debt management program does not guarantee legal protection, creditors often prefer working with a structured repayment plan over the uncertainty and cost of court proceedings.

Once you enroll in a formal program, your creditors are notified, and collection calls should eventually stop. Schwartz noted that the transition is not always instant. "The trustee and the credit counseling agency are notifying the consumers' creditors of their new situation and the calls should stop once they are notified. But sometimes, the left hand doesn't talk to the right hand and it takes a little bit of time, but typically, after two or three months, everybody knows the situation the calls will have ceased," noted Jeff Schwartz, Executive Director of Consolidated Credit.

You also have the right to send a written "cease and desist" request to a collection agency, asking them to communicate with you only in writing. Provincial consumer protection laws govern how and when collectors can contact you. In Ontario, the Collection and Debt Settlement Services Act prohibits harassment. If a collection agency violates the rules in your province, you can file a complaint with your provincial consumer protection authority, which has the power to revoke a collector's licence.

Before agreeing to pay anything, verify that the debt is actually yours, that the amount is correct, and that the collection agency is licensed to operate in your province. Debts are frequently sold and resold, and errors in the process are common. Request written verification of the debt signed by a representative of the collecting agency before making any payment. Keep records of every communication, every payment, and every agreement. If the debt is eventually paid in full or settled, file the confirmation in a safe place so you have proof if the matter resurfaces later.