Collection Agency Canada: Can They Sue You? (2025 Guide)

Updated July 28, 2025

If you’re worried about debt collection in Canada, you’re not alone. Many people wonder: can a creditor take you to court for unpaid debt? The short answer is yes — but it depends on your situation and the age of the debt.

Can a Collection Agency Really Take You to Court?

If you’ve stopped making payments on a debt, the original creditor — or the collection agency in Canada acting on their behalf — has the legal right to sue. However, lawsuits are uncommon. Most agencies rely on fear tactics to push people into paying.

“Less than one in 10,000 debts ever result in a lawsuit. Collection agencies rely on fear — not facts — to get you to pay.”

— Mark Silverthorn, The Wolf at the Door

Silverthorn, a former collection agency lawyer, explains how many collectors bluff or exaggerate their ability to sue. That makes it critical for consumers to understand what’s legal — and what isn’t.

Can a Creditor Take You to Court? Here’s What Happens

Yes, a creditor can take you to court in Canada if the debt is recent, valid, and above a certain threshold.

Here’s what happens when a debt collection lawsuit begins in Canada:

• You receive a statement of claim (legal notice)
• You can either defend the lawsuit or do nothing
• If you don’t respond, they may win by default judgment
• A judgment gives them the right to garnish your wages or freeze your bank account
• They may register a lien against your home

This legal process can be avoided entirely if you act early. Learn how to stop a wage garnishment.

What Debts Can Lead to a Lawsuit?

Debts that commonly result in lawsuits include:

• Credit card balances
• Lines of credit
• Unpaid personal loans
• Overdue utility bills
• Car loans in default
• CRA tax debt (in rare cases)

Can You Be Sued for Any Type of Debt?

Debts that commonly lead to lawsuits in Canada include:

• Credit card debt
• Lines of credit
• Car loans in default
• Personal loans
• Unpaid utility bills
• CRA tax debt

How Long Can a Collection Agency in Canada Sue You?

Every province has a statute of limitations — a time limit on when a debt can be taken to court. In Ontario, Alberta, and BC, it’s typically 2 years.

Once this time passes, a collection agency in Canada cannot sue you, though they may still try to collect. Talk to a Licensed Insolvency Trustee to understand your specific situation.

Can They Garnish Wages or Freeze Bank Accounts?

Only after they’ve won a lawsuit in court. With a judgment, a collection agency in Canada can:

• Garnish your wages
• Freeze your bank account
• Register a lien on your home

Without a court judgment, they cannot touch your assets.

Can Collection Agencies Charge Interest?

They cannot add new interest themselves. However, they may try to collect interest already charged by the original creditor.

What to Do If a Collection Agency Threatens to Sue

If you’ve received threats, letters, or calls, take these steps:

Talk to a Licensed Insolvency Trustee (LIT)

• Free consultations
• They can stop lawsuits, garnishments, and collection calls

Request written validation of the debt

• Ask for proof of the debt and how the amount was calculated

Consider a Consumer Proposal

• Stops all collection action
• Reduces your debt by up to 80%
• Learn more about filing a consumer proposal

Frequently Asked Questions

Helpful Resources

• Canadian Debt Collection Laws
• How to Stop a Wage Garnishment
• Book a Free Consultation
• Government of Canada: Debt Collection Agencies

Worried About Being Sued? Take Action Today.

Disclaimer: This page is for general informational purposes and does not constitute legal advice. For specific recommendations, contact a Licensed Insolvency Trustee.