Having unpaid debt turned over to a collection agency is a worst-case financial scenario for the majority of Canadians.
Whether you’re financially secure or struggling to get out of debt, it’s important to know what debt collectors can and can’t do in Canada, and how to minimize the impact if a debt collection agency does come calling.
What is a debt collector’s job?
Debt collectors work for collection agencies. These agencies are hired by creditors to help collect outstanding debt owed to them. Since this is their full-time job, collection agents may be more aggressive in their tactics than your original creditor would be.
Collection agencies must adhere to the laws and codes of conduct outlined for their industry by the provinces and territories in which they operate. While standards may vary from province to province, there are some common rules about how debt collectors must conduct themselves.
What debt collectors can and can’t do
In Ontario and B.C., debt collectors must send you a request to collect your debt — including the amount you owe, the creditor, the name of the collection agency tasked with collecting the debt and a way to contact them — in writing. Then, they must wait six days before they can start calling you.
Debt collectors cannot call you at home all hours of the day or night. Debt collection calls can legally occur from 7 a.m. to 9 p.m. Monday to Saturday, and 1 p.m. to 5 p.m. on Sunday, and never on holidays.
It’s permissible for a collection agency to call your work, your friends and your family, but there are limits to what they can legally do once they make those calls. First off, they can only call your workplace to verify your employment and once they do, they can’t call there again. Plus, they cannot tell your employer or your co-workers about your debt. They also can call your friends and family, but only to verify your address and phone number. They can’t harass your family and can’t tell them to pay your debt unless a family member is a co-signer on the loan or line of credit.
A collection agency can charge interest, but the interest rate can’t be higher than what the original lender can charge.
Debt collectors can take legal action against you by trying to garnish your wages, but they only have two years to pursue legal action, and any debt in collections is purged from your credit report after six years of inactivity.
How to deal with debt collectors (and get them to stop calling)
If a debt collector calls, use these tips to protect yourself and get clarity about what to do next:
- Determine whether you’re speaking with the original creditor or a collection agency. Some creditors have their own in-house collection departments. Ask for the name of the person you’re speaking with, their phone number and who they work for.
- Confirm to whom you owe money, the total balance owed and when the debt started. Make sure the debt is legitimate and if you’re unsure, go back into your records to confirm the debt. If it’s not yours, explain this, get in contact with the original creditor, get a copy of your credit report from both credit bureaus and request the error be corrected.
- If the debt is yours, pay it if you can. The collection agency will stop calling if you pay (make sure you get a receipt of payment).
- If you can’t pay, be honest with the collection agent. Inquire about what your options might be and try to arrange a payment plan.
You can also try to negotiate a consumer proposal with the help of a licensed insolvency trustee. This will allow you to negotiate one lump sum payment each month for all your debts that will be less than the total amount you would normally owe. Non-profit credit counselling organizations can also negotiate a debt consolidation settlement. A credit counsellor will negotiate with your creditors for a lower monthly payment, however, the payment will only apply to unsecured debt, like credit card balances.
Negotiating settlements or consumer proposals will get collection agencies to stop calling. Any legal action will also cease. Entering bankruptcy proceedings will garner the same result, but the consequences for your life and credit score will be more negative and far reaching. You will have to turn over most assets in service of paying your debts and a bankruptcy stays on your credit score for about seven years.
Whatever you decide to do, know that ignoring debt collectors won’t make them go away. There are multiple debt relief options in Canada, even if you can’t pay what’s owed. A debt in collections is an R9 on your credit report — the lowest rating possible — so the sooner you deal with it, the sooner you can get your financial life back on track.