Getting calls from collection agencies? It’s stressful, we get it. If you’re struggling financially, you may wonder: when do collection agencies give up on pursuing the repayment of a debt?
Knowing the rules can help you stress less, take control of the situation, and equip you with the right strategies to manage debt collection efforts. No matter how tough things seem, there’s always a way forward. Let’s break it down together.
This guide will explore collection agency operations, the factors determining when they stop pursuing debts, and a province-by-province breakdown of the statute of limitations on debt collection in Canada.
What Are Collection Agencies?
Collection agencies are third-party companies hired by creditors to recover unpaid debts. When an individual fails to make timely payments (the “debtor”), creditors may either sell the debt to a collection agency or hire one to collect on their behalf.
What Collection Agencies Do:
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Contacting debtors via phone, email, or mail to request payment.
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Negotiating payment plans or settlements on behalf of the creditor.
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Reporting unpaid debts to credit bureaus, impacting your credit score.
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Taking legal action when necessary to recover the owed amount.
Criteria for Transferring Debt to Collection Agencies
Creditors typically send debts to collection agencies after a period of non-payment, usually between 90 to 180 days. The timeline for a debt to be sent to collections depends on the type.
Credit card debt and personal loans usually get sent after 90 to 120 days of missed payments, while things like utility bills and phone bills might go to collections even sooner. Student loan debt, on the other hand, often has longer grace periods before collection agencies get involved.
When Do Collection Agencies Give Up?
Collection agencies don’t pursue debts forever. Several factors influence their decision to stop pursuing a debt:
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Statute of Limitations: The legal timeframe within which a creditor or collection agency can sue a debtor varies by province.
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Debtor’s Financial Situation: If the debtor lacks the means to pay, agencies may deem the debt uncollectible.
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Age of the Debt: Older debts are harder to collect, making agencies more likely to abandon them.
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Cost of Collection Efforts: Agencies may stop trying if legal or collection efforts outweigh the potential recovery amount.
When Do Collection Agencies Give Up, by Province?
Each province in Canada has specific statutes of limitations governing debt collection:
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Ontario: 2 years
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British Columbia: 2 years
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Alberta: 2 years
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Saskatchewan: 2 years
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Manitoba: 6 years
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Quebec: 3 years
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New Brunswick: 6 years
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Nova Scotia: 6 years
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Prince Edward Island: 6 years
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Newfoundland and Labrador: 6 years
Once the statute of limitations expires, collection agencies may still contact you, but can’t take legal action or sue to enforce the debt. Please note that although the statute of limitations has passed, the negative credit rating will still impact your credit report. It’s best to reference the credit bureaus for how long a debt will affect your credit rating. Contact us for a free debt assessment.
Strategies for Dealing with Collection Agencies
Understanding your rights and options when dealing with collection agencies can help you navigate the situation effectively.
Negotiating or Settling Debts
When dealing with collection agencies, it’s important to know that you have options to resolve your outstanding debts in a manageable way. Negotiating or settling debts can often lead to more favourable outcomes for the debtor, especially if full repayment is not financially feasible.
Request a Debt Validation Letter
A debt validation letter is a formal request in which you ask the collection agency to provide proof that the debt is indeed yours, that it is owed to the creditor they are representing, and that the amount being claimed is accurate. This step is important, as it protects you from paying debts that may be fraudulent or incorrect.
In Canada, collection agencies are required by law to provide this information upon request. This also allows you to verify the debt, and if the agency can’t provide the necessary documentation, they may be unable to continue pursuing the debt.
Negotiate a Payment Plan
If you can’t pay the full debt immediately, many collection agencies will be open to negotiating a payment plan. These plans allow you to pay the debt over time, often with smaller, more manageable installments.
Payment plans can range in length depending on the amount of debt and your financial situation, but it’s important to ensure that the terms of the agreement are realistic and affordable for you.
You can negotiate the frequency of the payments (monthly, bi-weekly, etc.) and the amount you pay. It’s also advisable to get the payment plan in writing, so both you and the agency are clear on the terms, and you have legal documentation in case of any disputes.
Offer a Settlement
A debt settlement occurs when you pay a lump sum that is less than the full amount owed to settle the debt. Collection agencies may be willing to accept a reduced amount as full payment in order to close the account.
This can be beneficial for both parties: the collection agency receives a portion of the debt, and you are relieved from the responsibility of paying the full amount. However, settling a debt this way is not always possible. It typically depends on the age of the debt, how long the collection agency has been pursuing it, and your ability to offer a substantial lump sum payment.
If you decide to offer a settlement, make sure that the agreement is documented in writing. This documentation should clearly state that the payment in question fully satisfies the debt and will result in the account being marked as “settled” or “settled in full” on your credit report. Before making any settlement offer, it’s wise to consult with a financial advisor to ensure it is a wise financial move for your situation.
When to Seek Professional Advice
There are several situations where seeking professional advice can be beneficial when dealing with collection agencies. Consulting a financial expert, credit counsellor, or legal professional can help you navigate complex debt issues and protect your rights. Here are key scenarios where professional guidance is highly recommended:
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If You’re Facing Aggressive Collection Tactics: Some collection agencies may use persistent phone calls, threatening language, or other high-pressure tactics to recover debts. If you feel harassed or intimidated, a financial expert or legal professional can advise you on how to handle these situations and ensure that the collection agency is adhering to Canadian consumer protection laws.
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If You’re Unsure About the Legality of a Collection Agency’s Actions: Not all collection agencies operate ethically or within the confines of the law. If you suspect that a debt collector is violating consumer protection regulations—such as contacting you outside of permitted hours, making false claims, or failing to provide proper documentation—you should consult a professional to verify your rights and determine the best course of action. You may also report the collection agency to your Consumer Affairs office.
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If You’re Considering Bankruptcy or a Consumer Proposal: When debts become unmanageable, you may need to explore options such as bankruptcy or a consumer proposal. A credit counsellor can assess your financial situation and help you understand the implications of these choices. They can also negotiate with creditors on your behalf and ensure that you follow the appropriate legal procedures to gain financial relief.
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If the Debt Is Too Old to Collect: If a collection agency is pursuing a debt that has surpassed the statute of limitations, it may no longer have the legal right to sue you. A professional can help you confirm whether the debt is legally enforceable and guide you on how to respond to the agency’s communications.
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If You Need Help Negotiating a Settlement: Some collection agencies may accept reduced lump-sum payments or structured payment plans. A credit counsellor or financial expert can help you negotiate favourable terms and ensure that any agreement you make is documented properly to prevent future disputes.
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If You Are Worried About the Impact on Your Credit Score: Unpaid debts can stay on your credit report for years, affecting your ability to secure loans, mortgages, or even employment in certain industries. Seeking advice from a financial professional can help you understand the impact of collections on your credit and develop strategies to rebuild your credit score over time.
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If You Receive a Lawsuit Notice: In cases where a collection agency initiates legal action, consulting a lawyer or financial expert is crucial. They can explain your options, help you respond appropriately, and represent you in court if necessary.
Professional advice can provide clarity and support, helping you make informed decisions and regain control of your financial situation. If you’re dealing with persistent debt collection issues, don’t hesitate to reach out to our credit counsellors for support and guidance.
Know Your Rights
In Canada, consumers are protected under Fair Debt Collection Practices laws, which include limits on when and how debt collectors and agencies can contact them.
The Fair Debt Collection Practices Act sets rules on how collection agencies can operate, protecting consumers from unfair practices such as harassment and misleading claims. Individual provinces have their own laws, too, such as Ontario’s Collection and Debt Settlement Services Act.
Additionally, past due debts can appear on a debtor’s credit report for up to seven years, negatively impacting their credit score. This includes debts from credit cards.
When dealing with an old debt, it’s important to understand your rights and obligations before making any payments. If a collection agency contacts you, check whether the debt is still within the statute of limitations before making any payments.
A debt repayment agent must notify the debtor within 30 days if the original creditor decides to stop accepting or negotiating a debt settlement.
Get Debt Relief Help from Credit Canada
Good news—collection agencies don’t chase debts forever! Knowing when they stop can give you some peace of mind. Whether you negotiate a settlement, seek legal advice, or simply wait out the statute of limitations, knowing your rights empowers you to handle debt collection confidently.
Are you dealing with a collection agency? You don’t have to do it alone. Credit Canada has been successfully resolving debt matters for 50+ years, we are experienced and skilled at finalizing collection accounts. Chat with our counsellors for personalized help.