Can a Collection Agency Take You to Court in Canada?

Can a collection agency sue you?

Yes. A collection agency can sue you to collect a debt you haven't paid if its creditor-client authorizes a lawsuit against you.

If your creditor wants to sue you, it has two options. Firstly, your creditor can sue you without a collection agency having any involvement in the lawsuit. Secondly, your creditor can assign your unpaid account to a collection agency, and then it can choose to authorize the collection agency to sue you on its behalf.

Except for the government, creditors in Canada cannot garnishee your wages, seize money in your bank account, place a lien on your house, or seize property without first suing you and obtaining a judgment.

A collection agency often can't sue on its own. On accounts it collects for someone else, the creditor owns the debt and has to authorize legal action first.

When a collection agency buys the debt outright, it owns the account and can sue in its own name.

To get a judgment, the collection agency files a claim with the court, serves it on you, and proves you owe the money. If you don't respond in time, it can ask for a default judgment instead.

Seek legal advice if you have been sued

If you have been sued, the prudent course of action is to obtain legal advice in terms of how to respond to the lawsuit.

How much do you have to owe before a collection agency sues?

There's no minimum dollar amount you must owe before you will be sued. People often ask if a collection agency will sue for $2,000 or for $10,000, but there's no set amount. Consumers are rarely sued on unpaid accounts under $3,000.

A collection agency and its creditor-client must consider all the costs associated with suing you when making the decision to sue you. Obtaining a judgment from a court after suing you is no guarantee that your creditor is going to recover a penny from you. 

Small balances often get sold to a debt buyer, because suing costs more than the likely recovery. A debt of a few hundred dollars rarely ends up in court. Bigger balances, in the thousands, might be worth the effort, because a judgment lets the creditor access your wages or certain assets.

You are much more likely to be sued if you own a home and your name is on the title. In some instances, you might be sued because you have a high-paying job.

The age of the debt is also crucial. Once your province's statute of limitation period expires, a collection agency can still file, but you can defeat the claim by raising the expired limitation period as a defence.

Can a collection agency garnish your wages without a court judgment?

No. A collection agency has to sue you, win a judgment, and then get a separate enforcement order before it can touch your pay or property.

So a collection agency can't garnishee your wages or your bank account, or put a lien on your home just by demanding it.

The Canada Revenue Agency has extraordinary enforcement remedies compared to consumer creditors. The CRA can garnishee wages and bank accounts for tax debts without going to court.

Source: Government of Canada, Canada Revenue Agency – Collections at the CRA

What happens when a collection agency takes you to court?

When either a collection agency or its creditor-client takes you to court, it files a claim with the court and serves it on you. The court document that starts the lawsuit sets out who is suing you, how much they say you owe, and why.

In many provinces, the collection agency has to deliver it by personal service, which means handing it to you or to an adult at your home. Some provinces may also permit service by some alternative means.

The bottom line is this. It should not be possible for you to be sued without you being aware of it. It is important that you open any mail or courier packages sent to your home address.

Once you're served, the clock starts. You have a set number of days to file a defence. In Ontario, that window is 20 days for most claims.

Source: Government of Ontario – Rules of the Small Claims Court, O. Reg. 258/98

If you miss the deadline, the collection agency can ask the court for a default judgment. That's a ruling in its favour without a trial, entered because you didn't respond. A default judgment counts the same as one won at trial. It lets the collection agency garnishee your wages and seize assets.

Will you be sued in small claims court or a higher court?

Each province and territory in Canada has different courts and different procedural rules. If you are sued, you might want to research the relevant rules in the province where you live.

Most consumer debt claims go to small claims court, which handles smaller amounts under simpler rules. Larger claims go to a province's higher court, where the process is slower and costs more for whoever is suing.

The small claims limit varies by province.

Sources: Government of Ontario – Small Claims Court Jurisdiction, O. Reg. 626/00 (amended by O. Reg. 42/25). BC Laws – Small Claims Court Monetary Limit Regulation, B.C. Reg. 179/2005. Alberta Courts – Civil claims in the Alberta Court of Justice

How do you respond if a collection agency sues you?

If a collection agency sues you, the worst thing you can do is nothing. Respond by the deadline, even if you think the debt is too old or you can't pay. Not responding hands the collection agency a default judgment.

Start by checking whether you've actually been sued. A letter saying legal action "may" follow isn't a lawsuit. A claim with a court file number, served on you, is.

Ask for written debt validation. The collection agency has to give you the original creditor's name, the amount owed, the date of last activity, and the account number.

From there, you have three realistic paths:

• Defend the claim if you have grounds, like an expired limitation period.
• Settle it. If no payment has been made on your account for at least six months, then your creditor and its authorized collection agent might be willing to accept a one-time lump sum payment for less than the outstanding balance as settlement in full.
• If you've got several debts you genuinely can't manage, a Licensed Insolvency Trustee can file a consumer proposal or bankruptcy. Filing triggers an automatic stay of proceedings that stops the lawsuit and any garnishment at once.

Source: Government of Canada – Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 69

How do you defend a collection agency lawsuit?

Your strongest defence against a collection agency lawsuit is an expired limitation period. The clock runs from your last payment or last written acknowledgment of the debt, and the period is two years in most provinces.

If the time has passed, the debt is statute-barred, and you can ask the court to dismiss the claim. But note that the defence isn't automatic. You have to file a defence and raise it, or the court can grant default judgment even on a debt where a limitation period has expired.

For the exact period where you live and what resets the clock, read more about the statute of limitations on debt in Canada.

If the debt is valid and still in time, you can't use that defence. Your next move depends on what you own.

If you are judgment-proof, you have no assets or income available to satisfy a judgment. You might be judgment-proof if you do not own real property and you support yourself on government assistance, including Canada Pension Plan, Old Age Security, and Guaranteed Income Supplement benefits. Furthermore, each province has a law shielding certain property from seizure by judgment creditors.

If you are judgment-proof, then it might not make any sense to file a defence. If that's you, an expensive fight often isn't worth it, because win or lose, they can't collect what you don't have. However, the judgment still goes on your record, and they can enforce it later if your finances improve.

If you do have wages or assets worth protecting, settle before the judgment, not after. After a win, court costs get added to your balance and interest keeps building, so settling early means a smaller bill.

What can a collection agency do after winning a judgment?

Once a collection agency wins a judgment, it can attempt to enforce it. A judgment might result in garnishment of wages or a bank account, or a lien on your property. This doesn't occur until the collection agency goes to court and wins.

Wage garnishment lets the collection agency take part of your pay through your employer. The amount is capped by province. A lien attaches to real estate you own and gets paid when you sell or refinance.

A judgment can also outlast the debt itself. For example, in Ontario, a judgment from 2004 onward doesn't expire.

Source: Government of Ontario – Limitations Act, 2002, s. 16(1)(b)

Some enforcement methods renew on their own schedule. A notice of garnishment and a writ of seizure and sale of land each last six years in Ontario, and the collection agency can renew them.

Source: Government of Ontario – Guide to procedures in Small Claims Court, after judgment

Frequently asked questions

Can a collection agency really sue me, or is it bluffing?

A collection agency can sue, but it often threatens or implies future legal action it never takes, because going to court costs money. Whether it follows through depends on how much you owe and whether it can recover any money from you if it were to obtain a judgment against you.

What happens if I ignore a collection agency lawsuit?

Ignoring it is the costliest move you can make. If you don't respond by the deadline, the court can enter a default judgment against you, even if you had a valid defence. That judgment lets the collection agency garnishee your wages or your bank account, or place a lien on your home.

Can a collection agency sue me for an old debt?

A collection agency can file a lawsuit on an old debt. If your province's limitation period has expired, you can successfully raise the expiry of your province’s limitation period as a full and complete defence. The defence isn't automatic. You have to respond and plead it, so never ignore court papers just because the debt is old.

How long does a collection agency have to sue me in Canada?

It depends on your province. The limitation period runs from two to six years for most unsecured debts, and two years is the most common. The clock usually starts from your last payment or last written acknowledgment of the debt.

Can a collection agency sue me in a different province?

Yes. A collection agency usually files in the province where you live, because that's where a judgment has to be enforced. The limitation period and court rules that apply are normally those of your current province, not the one where you took on the debt.

Can I be sued if I have no job and no assets?

A collection agency can still sue, but if you have no income or property a court order can reach, you're judgment-proof, and there's little motivation to sue you. That reality often discourages any lawsuit from being commenced against you. The judgment can still sit on file and be enforced later if your finances improve.

Does the collection agency sue me, or does the original creditor?

Your creditor can sue you independently without any involvement of a collection agency. Your creditor also has the option of assigning your unpaid account to a collection agency and then authorizing that collection agency to sue you.

In some cases, a collection agency might have purchased your outstanding account, in which case it can choose to sue you.

Will I go to jail if a collection agency takes me to court?

Subject to one narrow exception, the answer is no. Unpaid debt is a civil matter, not a criminal matter. We do not have debtors’ prisons in Canada.

If your creditor sues you and obtains a judgment against you, it will be entitled to a judgment-debtor examination, at which you will be required to attend and answer questions under oath regarding your assets and income.

If you were to fail to appear for a court-ordered judgment-debtor examination, you would be in contempt of court, and a judge could order you to spend some time in jail.