What Happens If You Don’t Pay a Collection Agency

Reviewed by
Crystal Buhler | CPA, CGA, CIRP, Licensed Insolvency Trustee
on November 24th, 2021 10:26 am

Have you received calls from a collection agency or a debt collector? This can be upsetting, but there are effective ways to deal with collection agency calls.

If the debt is a real one – one that you do owe – and you don’t pay the collection agency, you can wind up in court. The likelihood of this depends on how much you owe, how long you have owed it, and other factors. If the debt has been placed with a collection agency, it is already very overdue.

Read on to learn why a collection agency calls you, what you should do if you receive a call or a letter from a debt collector, and how likely the agency is to sue you if you do not respond and pay the debt.

How did the debt collection agency get involved in my debt?

There are two ways a collection agency can “end up” attempting to collect your debt: the agency may have arranged to be assigned the debt, or the agency may have purchased the debt.

Debt assignment

In debt assignment, the collection agency has accepted the assignment of collecting a debt on behalf of one of your creditors, such as a payday loan office or a credit card company. If the agency successfully collects the funds, they forward most of it to the creditor and retain a percentage as their fee.

Purchase of accounts

Here, the collection agency has purchased the file from the creditor. Thus, you no longer technically owe the original lender anything – you owe the collection agency. The collection agency is still obliged to inform you where the debt originated. 

In this situation, your credit score will already have taken a hit from the delinquent account with the lender, as they have written it off as a bad debt.



What is the difference for me, the debtor?


In the end, whether the collection agency has been assigned the debt to collect on behalf of a lender, or purchased the account outright, the result is the same for you – the agency will attempt to collect on the debt.

What should I do if a debt collection agency calls me?

It’s always distressing to get a call out of the blue, from someone who knows your business and is demanding something. Sometimes collection agency calls are exactly what they seem – attempts by debt collectors to receive money you are delinquent on repaying – but sometimes, you may be talking to a scammer.

Try not to be upset about the call. If you can’t talk just then, or want to think about the situation, ask the collector to call back another time. Or, ask them questions about the situation so that you have more information. Read on to check out various reasons you may be receiving this call.

Ask yourself, do you really owe the debt to the collection agency – or is this a scam?

First, it is important to verify that you really owe the debt

In Canada, debt collection agencies are required first to notify you in writing (usually by mail), before attempting to reach you by phone. Have you received a letter?

Also, a credible collection agency will identify itself and also identify what company’s account they are collecting. If they are vague, abusive or threatening, they are unlikely to be legitimate.

Another red flag: the debt collector asks you to make a payment over the phone with a credit card, or asks you to mail pre-paid cards to settle the debt. Legitimate collection agencies will not ask for these methods of payment.  

If you are certain that you do not owe the amount the debt collector is demanding, the call is likely a scam and you can safely ignore it.

If you are not sure, you may request that they mail, or re-mail, documentation regarding the debt.

If you believe a scammer is attempting to victimize you, contact the Consumer Affairs office in your province or territory.



If you owe – you can pay the debt

Sometimes, things are simple. You know you owe the money the collection agent is calling about – or the call has reminded you of it – and you simply arrange to pay the account. Once payment is received, the collection account is closed and you will not receive any more debt collector calls regarding that account.

If you owe – you can ignore the debt (but be careful)

Ignoring calls from collection agencies is always an option, but is it a wise one? Perhaps you feel you don’t have a choice … what if you simply do not have the money to pay your debts? Or, what if your credit cards have gotten out of hand and your debts are going up and up? 

Sometimes, paying a collection agency will mean you fall behind on another payment, such as a credit card bill.

There are certain circumstances in which you can safely ignore credit agency calls, but first, we will cover some of the rules debt collectors must follow.

Know the rules about lawful debt collection

The Financial Consumer Agency of Canada offers this webpage on dealing with debt collectors. The following are some rules debt collectors in Canada must follow:

  • A debt collector can only call you Monday to Saturday from 7 am to 9 pm, or Sunday from 1 pm to 5 pm – and not at all on holidays
  • He or she can contact your family, friends or employer, but only to get your phone number
  • He or she cannot use threats or abusive language
  • He or she cannot pressure your friends or family to pay your debts for you

Refer to the link above for more information on dealing with collection calls.

What happens if I don’t pay the collection agency?

Various outcomes are possible with collections, depending on the situation.

Is the debt very small?


A credit collection agency is simply a business that makes its money by collecting “bad debts.” 

If you are wondering if a collection agency will sue you over a debt smaller than, say, $1,000, consider that their legal costs in doing so may be larger than what they hope to be awarded by the court. In other words, if the debt is small, they are unlikely to sue.

That being said, they may still say they are planning to sue, or even send a letter from a lawyer telling you so, in an attempt to persuade you to pay.

Is the debt very old?

In some cases, you may not legally owe the amount anymore because the debt has passed the time period laid out in your province or territory’s Statute of Limitations. The timelines laid out in the Statute do not prevent some collectors from persisting in trying to collect – but if they were to take you to court, you or your lawyer could argue in your defence that the debt had expired.

To summarize: in the case of a very old debt, which is past the time limit defined in your area, your creditor is unlikely to win if they took the matter to Court. As they are aware of this, they are unlikely to initiate – a court case against you.

For more on this topic, see our page, A Guide to Canadian Debt Collection Laws

A Licensed Insolvency Trustee can help you navigate the Statute of Limitations in your province or territory. Your first, no-obligation meeting is free.

Are you “creditor-proof”?

Sometimes, if you have a low income and few assets, there is little or no money anyone could realistically hope to collect from you. The term for this is “creditor-proof.” If this is your situation, you can safely ignore collection calls. Even if the agency successfully sued you, there’s nothing they could collect.

Take care, though – make sure you are actually safe from creditors by checking with a professional such as an accountant, lawyer, or Licensed Insolvency Trustee. In the case of a Licensed Insolvency Trustee, your first meeting is free and confidential, and you will come away with valuable information about your options.

Will they keep calling?

Yes, in most cases – unless they are convinced that there is no possibility you will pay the account – the collector will continue to call unless you take further action to resolve your debts.

Will debt collection affect my credit score?

You may wonder whether collection activities will affect the credit score on your credit report. The answer is a qualified yes – but when accounts are so overdue that they are assigned or sold to collection agencies, the credit bureaus are aware of this and your credit rating has almost certainly already been negatively impacted. These debts will be assigned an “R9” rating on your credit report – the same rating as a bankruptcy.


Keep in mind that if you successfully deal with your debts and resume regular payments, your credit history on your credit report will improve over time, as various lenders submit more favourable information for your credit scores.

What if the debt collector actually sues?

If a debt collector sues you, you will receive a Statement of Claim by mail or via a person called a process server. Depending on where you reside, you have a set number of days to respond – or not – to the Statement of Claim.

If you do respond, you or your lawyer will file a Statement of Defence and may attend a court date and attempt to persuade the court that you do not, in fact, owe this amount.

If you do not succeed – or if you do not respond to the lawsuit at all – the Court will likely find in favour of the creditor. Once the creditor has secured this Judgment against you, they can proceed with wage garnishment, freezing your bank account or seizing certain property – within legal limits – to realize the value of the debt owed.

I feel overwhelmed – is there help?

If you are experiencing debt collection calls from agents, your debts likely feel insurmountable. However, there is always a solution – and often, it is easier than you think. 

The professional who can help you in this situation in Canada is a Licensed Insolvency Trustee (LIT). An LIT trains intensively and is authorized by the Government of Canada to assist in all insolvency situations. Your first, confidential meeting is free. The LIT can advise you on various debt relief options, from a debt management plan to bankruptcy – but the choice of whether to act is up to you. 

If consumer proposal or bankruptcy is the answer, the insolvency trustee will guide you through the process – in fact, a LIT is the only professional authorized by the government to file your consumer proposal or bankruptcy.

Ready to take the first step on the road to less worry and more financial success? Find a Licensed Insolvency Trustee in your area today.