When Can a Creditor Sue You?
Any creditor — a bank, a credit card company, a collection agency, a landlord — can file a lawsuit to collect money you owe them, as long as two conditions are met:
- The debt is valid and documented. There must be a clear record of what you owe and why.
- The lawsuit is filed within the limitation period. In Ontario, creditors generally have two years from the date you last made a payment, acknowledged the debt in writing, or the debt became due to file a claim.
After that two-year window closes, a creditor’s ability to sue is significantly restricted — though the debt itself does not disappear, and collection activity can still continue.
What Usually Triggers a Lawsuit?
Creditors do not sue automatically when a payment is missed. Legal action costs time and money, and most creditors prefer to collect through calls and collection agencies first. Lawsuits typically happen when:
- The debt is large enough to justify the legal cost (typically $5,000 or more, though smaller amounts are sometimes pursued)
- The creditor or collection agency has reason to believe you have income or assets worth pursuing
- Negotiation attempts have been exhausted
- The limitation period is approaching and they need to act before it closes
What Happens If a Creditor Gets a Judgment?
If a creditor sues and wins, the court issues a judgment — a legal declaration that you owe the amount. A judgment is not just a piece of paper. It gives the creditor powerful enforcement tools:
Wage Garnishment
The creditor can apply to the court for a garnishment order, which directs your employer to withhold a portion of your pay and send it directly to the creditor. In Ontario, up to 20% of your net wages can be garnished. This happens without your ongoing consent — your employer is legally required to comply.
Learn more about how this works in our guide to wage garnishment in Canada.
Bank Account Seizure
A judgment creditor can also garnish a bank account directly — freezing funds and redirecting them toward the debt.
Lien on Property
A creditor with a judgment can register a lien against real property you own. This does not force an immediate sale, but it means the debt must be paid before you can sell or refinance.
How to Stop a Creditor from Suing You
The most effective way to stop creditor legal action — including lawsuits that have already been filed — is through a formal legal process that triggers a stay of proceedings.
When a Consumer Proposal is formally initiated under the Bankruptcy and Insolvency Act, an automatic stay of proceedings takes effect immediately. All creditor actions stop — including lawsuits in progress, wage garnishments already in place, and collection calls. Creditors are legally prohibited from continuing any action against you.
This is the most powerful legal protection available to someone facing creditor lawsuits, and it also reduces the underlying debt — meaning you solve both problems at once.
For debts that do not yet involve legal action, debt settlement may be an option that resolves the debt before it reaches the courts.
What If a Lawsuit Has Already Been Filed?
A Consumer Proposal can stop a lawsuit even after it has been filed, as long as a judgment has not yet been enforced. Once the stay of proceedings is in effect, any legal proceedings already underway are frozen.
If a judgment has already been issued and enforcement has begun — for example, a wage garnishment is already active — a Consumer Proposal can still stop the garnishment. The stay of proceedings applies to enforcement of existing judgments as well.
Time matters here. The longer a lawsuit or garnishment runs without a response, the more money comes out of your pocket. Getting legal advice as early as possible limits the damage.
Facing a Creditor Lawsuit or Wage Garnishment?
We can step in immediately. A free consultation gives you a clear picture of your legal options and how quickly we can stop the action against you.
Frequently Asked Questions
How long does a creditor have to sue me in Ontario?
In Ontario, the limitation period for most debts is two years. The clock typically starts from the last date you made a payment, acknowledged the debt in writing, or the debt became due. After two years, a creditor’s ability to successfully sue is significantly limited. However, making a payment or acknowledging the debt in writing can reset the clock.
Can a collection agency sue me directly?
Yes. If a collection agency has purchased your debt outright, they are now the creditor and have the same right to sue that the original lender had. If they are collecting on behalf of the original creditor, they may sue in the original creditor’s name. Either way, the legal process and consequences are the same.
Can a creditor sue me for a small amount?
Yes — Ontario’s Small Claims Court handles claims up to $35,000. This makes it financially practical for creditors to sue for smaller debts. Collection agencies in particular often use small claims to obtain judgments on accounts of a few thousand dollars.
What happens if I do not respond to a lawsuit?
If you do not file a response, the court may grant a default judgment in the creditor’s favour without a hearing. This gives the creditor full enforcement rights without you having a chance to dispute the claim. Never ignore a lawsuit — even if you cannot pay, you have the right to respond.
Can a Consumer Proposal stop a wage garnishment that has already started?
Yes. When a Consumer Proposal is filed and a stay of proceedings takes effect, enforcement of existing judgments — including active wage garnishments — must stop. Your employer will be notified and the garnishment ceases. This is one of the most immediate and practical benefits of the process.
