A Collection Agency Is Suing Me in Canada — What Do I Do?

Last updated: July 2026. Civil procedure rules cited are for provincial superior courts. Small claims courts have different rules and shorter timelines.

If a collection agency or debt buyer has served you a Statement of Claim, a civil lawsuit has started in a Canadian provincial court. The entity suing you likely is not your original bank — it is almost certainly a company that purchased the debt after your original creditor charged it off. This is standard practice in the Canadian debt-buying industry, and it is legal.

Quick answer: A collection agency suing you has started a formal civil lawsuit. You have 20 days to respond in Ontario and Alberta, 21 days in BC. If you do nothing, the court enters a default judgment and wage garnishment or bank account seizure can begin immediately. If you cannot pay, a consumer proposal under the BIA triggers a legal stay that stops the lawsuit now — before judgment is entered.

Who Is Actually Suing You — and Why It’s Not Your Original Bank

When you stopped paying a credit card or personal loan, the original bank (RBC, TD, BMO, Scotiabank, CIBC, or another lender) typically charged off the account between 120 and 180 days of non-payment. At that point, it either transferred the account to an internal collections department or — more commonly for large portfolios — sold the debt to a debt buyer.

Debt buyers are companies that purchase portfolios of charged-off accounts from banks for a fraction of face value — sometimes 5 to 15 cents on the dollar for older accounts. When they purchase the debt, they also acquire the legal right to collect the full outstanding balance. The Financial Consumer Agency of Canada (FCAC) confirms that purchased debts retain their legal enforceability.

Debt buying firms operating in Canada include subsidiaries of companies like Portfolio Recovery Associates and Encore Capital Group, as well as domestic Canadian collectors. They are licensed under provincial legislation — the Collection and Debt Settlement Services Act in Ontario, the Business Practices and Consumer Protection Act in BC, and equivalent legislation in other provinces — and must be registered with the provincial consumer protection regulator.

The 20-Day Response Deadline: What It Means

When a statement of claim is served on you, the clock starts immediately. If you do not file a Statement of Defence (Ontario), a Response to Civil Claim (BC), or the equivalent document in your province within the deadline, the creditor applies for a default judgment — a court order declaring you owe the amount claimed.

A default judgment is typically granted without any hearing when no defence is filed. Once the judgment exists, the collection agency has enforcement tools that do not require further court appearances.

What Collection Agencies Can Do With a Judgment

In Ontario, the Wages Act, R.S.O. 1990 limits wage garnishment to 20% of net wages. In Alberta, the Civil Enforcement Act allows garnishment of up to 50% of wages above a minimum exemption. In BC, the Court Jurisdiction and Proceedings Transfer Act governs enforcement.

The collection agency does not need your cooperation to enforce a judgment. The court order is served directly on your employer or bank. You find out when your pay is short or your account is frozen.

Is the Debt Legitimate? Check Before You Respond or Pay

Before deciding how to respond, verify three things:

1. Is this debt actually yours? Confirm the original creditor name, account number if stated, and approximate balance. Identity theft, mixed files at the credit bureau, or clerical errors at the debt buyer can result in legitimate claims against the wrong person.

2. Is the amount correct? Debt buyers sometimes add collection fees, interest, or legal costs that push the claimed amount above what the original contract allowed. Compare the claimed amount against your last statement from the original creditor.

3. Is the debt within the limitation period? The limitation period in Ontario, Alberta, and BC is 2 years from the date of last payment or written acknowledgment. If you made no payment and sent no written acknowledgment in the past 2 years, the debt may be statute-barred — but you must file a defence to raise this argument. A default judgment entered against a statute-barred debt is still enforceable until successfully appealed.

The Ontario Association of Credit Counselling Services and the Credit Counselling Society (a national non-profit) offer free assessments that include reviewing your credit bureau for accuracy, which can help identify errors before you respond.

Three Ways to Respond to a Collection Agency Lawsuit

If you file a consumer proposal: The stay of proceedings under Section 69.3 of the Bankruptcy and Insolvency Act (BIA) stops the lawsuit the day the Licensed Insolvency Trustee files the proposal with the Office of the Superintendent of Bankruptcy (OSB). It does not matter what stage the lawsuit is at — pre-judgment, post-judgment hearing scheduled, or judgment recently entered. The stay stops new enforcement action from that filing date forward.

If you negotiate a settlement: Get the settlement agreement in writing and confirm it includes a Consent to Dismissal or Notice of Discontinuance filed with the court before you pay. Verbal agreements that do not result in a court filing do not stop the lawsuit.

If you dispute the debt: The statement of claim names a specific amount and a specific creditor. You have standing to contest the facts. Contact a lawyer or a paralegal licensed by the Law Society of Ontario (for Ontario matters) if the debt is genuinely not yours or the amount is materially wrong.

The One Thing That Changes Everything

The key fact most people miss: a consumer proposal filed before judgment is entered is more powerful than most settlement negotiations at the same stage. The stay of proceedings is a statutory right — not something the collection agency agrees to or can refuse. Once filed, the lawsuit stops. No negotiation required.

Licensed Insolvency Trustees are federally licensed under the BIA and regulated by the OSB. The initial consultation is free and covers whether a consumer proposal is appropriate, what the estimated payment would be, and how the stay of proceedings would affect any active or pending legal action.

If you have been served a statement of claim and the debt is real but unpayable, the 20-day deadline makes an LIT consultation the most time-sensitive call you can make today.