What Is a Debt Collection Agency and What Can They Do to You?

A debt collection agency is a company hired — or that has purchased the right — to collect money you owe to another party. They can contact you, report your debt to the credit bureaus, and in some cases take you to court. But they also operate under strict legal rules in Canada, and knowing those rules puts you in a much stronger position to respond. At Metus Lykos Debt Law Firm, we help people deal with collection agencies on legal terms — and when the situation calls for it, stop collections permanently through formal legal proceedings.

How Does a Debt Get Sent to a Collection Agency?

When you stop paying a debt — a credit card, a line of credit, a bill — the original creditor tries to collect for a period, usually 90 to 180 days. After that, two things can happen:

1. The creditor hires a collection agency to pursue you on their behalf. The original creditor still owns the debt.
2. The creditor sells the debt outright to a debt buyer, who now owns the debt and collects for their own account.

Either way, you will start receiving calls and letters from a company you may not recognize — because it is no longer the company you originally borrowed from.

What Can a Debt Collection Agency Do to You?

Collection agencies in Canada have a defined set of tools available to them:

• Contact you by phone, letter, and email — they can and will reach out repeatedly
• Report the debt to credit bureaus — this damages your credit score and leaves a mark on your credit report for up to six years
• Negotiate a settlement — many collection agencies will accept less than the full amount owed, especially on older debt
• Take you to court — if the debt is large enough and within the limitation period, a collection agency can sue for a judgment. A judgment gives them the ability to garnish your wages or bank account.

Most collection agencies focus on contact and negotiation rather than lawsuits — legal action costs them time and money. But for larger debts, it is absolutely a tool they will use.

What Can a Collection Agency NOT Do?

Ontario’s Collection and Debt Settlement Services Act sets clear limits on how collectors can behave. Violating these rules is illegal.

If a collection agency crosses any of these lines, you have the right to file a complaint with the Ministry of Public and Business Service Delivery in Ontario. Keep records of every call — date, time, what was said.

Should You Pay a Collection Agency?

This is one of the most important questions to ask before doing anything. The answer is: not necessarily, and not without understanding the consequences.

Making a payment — even a small one — to a collection agency can restart the statute of limitations on the debt, giving them a fresh window to sue you. It also does not guarantee the debt gets settled or that collection activity stops.

Before making any payment to a collection agency, read our article on why you should never pay a collection agency without legal advice first. Understanding the rules protects you from making a decision that makes your situation worse.

How to Stop Collections Permanently

The only way to stop all collection activity immediately and permanently — including calls, letters, and the threat of lawsuits — is through a formal legal process.

A Consumer Proposal under the Bankruptcy and Insolvency Act creates an automatic stay of proceedings the moment it is filed. All creditors — including collection agencies — are legally prohibited from contacting you or taking any action against you for the duration of the process.

This is the most powerful tool available to someone dealing with aggressive or overwhelming collection activity. It does not just pause the calls — it legally ends them, while simultaneously reducing the debt you owe.

If collections have reached a point where your wages are being garnished or legal action has been threatened, read our guide on wage garnishment in Canada to understand what comes next and how to stop it.

Frequently Asked Questions

Can a collection agency garnish my wages in Canada?

Not directly, without a court order. To garnish wages, a collection agency must first sue you and obtain a judgment. Once they have a judgment, they can apply to the court for a garnishment order. The best way to prevent this is to address the debt before it reaches the lawsuit stage — or to file a Consumer Proposal, which stops any garnishment immediately.

How long can a collection agency pursue a debt in Canada?

In Ontario, collection agencies have two years from the date of last activity on the debt to take you to court. After that window closes, their legal options are significantly limited. However, they can still attempt to contact you and report the debt — and the debt itself does not disappear.

Can a collection agency contact my employer?

Only to verify employment or to enforce a court judgment. Under Ontario’s collection laws, a collection agency generally cannot contact your employer to discuss your debt or pressure them in any way without your written permission. If a collector is contacting your workplace inappropriately, that is a violation you can report.

What happens if I ignore a collection agency?

Ignoring them does not make the debt go away. The debt continues to accumulate interest, the credit damage continues, and the collection agency may escalate to legal action if the debt is large enough and within the limitation period. Ignoring the situation almost always makes it more costly to resolve later.

Can a Consumer Proposal stop collection agency calls?

Yes — immediately. When a Consumer Proposal is filed under the Bankruptcy and Insolvency Act, an automatic stay of proceedings takes effect. All creditors and collection agencies are legally prohibited from contacting you or taking any further action against you. It is the most effective legal tool for stopping collections permanently.