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Are you facing a debt in collections? You should act fast to protect your financial future. There are things you should know and steps you should follow to minimize the damage this does to your credit rating and your financial situation.
In this short guide, you’ll learn more about how debt collectors work in Canada. You’ll find out what happens when one of your debts goes to collections, who you have to pay, and how debts in collections can be paid step-by-step.
The debt collection process is highly regulated in Canada. You’ll know you're dealing with a legitimate debt collection agency when they contact you through the proper process. Watch for all of the following steps to play out from the time your debt goes to collections.
The collection agency that assumes your debt will attempt to send you a written notice. A proper notice should list the name of the collection agency. It should also list the person you owe money to and the amount that you owe. At this time, you may still be able to avoid having the debt collected by contacting your creditor immediately.
Even at this point, your creditor may be willing to work with you. Creditors have to give up a large portion of your debt when they transfer the balance to a collector. If you are willing to pay a portion of the total amount or make alternative arrangements, you may be able to reach an agreement.
If you have a debt in collections, you can expect immediate changes to your credit score. This is one of the financial signals that causes a lower credit score. As a result of the change, you may face several financial consequences. You may have trouble getting attention from lenders, landlords, or employers. Insurance companies may charge you more for the same policy. Keep monitoring your credit score to determine what kind of problems you may be facing.
Your debt collector should call you directly when they begin collecting the debt. To make sure you’re dealing with a legitimate debt and collector, verify all the details first. You’ll want to get the agent’s name, company, and contact information. You’ll also want to confirm the amount you owe, the party you owe it to, and when you started owing it. Compare these details to your own records about the debt before it was sent to collections.
Try to resolve the debt you owe by paying it back as soon as possible. Debt collectors will take the full amount if you have it ready, but they will also work with you to set up a monthly payment plan. You’ll often need to send a first payment to show your commitment to any plan.
Having a debt in collections can be a frustrating experience, but these agencies are legally permitted to do their work, and you have to pay them if you want to restore your credit score.
You have to pay collection agencies if your debt is legitimate. A debt collection agency is a legal company that specializes in recovering unpaid debts for governments or private lenders.
You cannot ignore collection agencies just because they aren’t your original creditor. The transfer of debts is permitted under Canadian law, and debt collectors have the right to pursue the debt by all legal means until it is paid.
If you don't make your debt payments, a debt collector may contact you. Their objective is to collect money you owe on a credit card, line of credit, or loan. Once you have confirmed it is valid, you should attempt to pay the full balance by any method as soon as possible.
Collection agencies can escalate if you ignore their legitimate attempts to collect the debt. One of the actions they can take is suing you for the debt in court. If they win a debt collection suit against you, they can take the money directly out of your bank account or by garnishing your paycheck.
You have rights when your debt is sold. The rights you have depend on whether your debt collector is a federally regulated financial institution or not. If they are, they must follow all federal regulations, like those below:
These institutions must inform you of:
They cannot add any collection related costs to the amount you owe other than:
They are not permitted to:
Debt collection agents may not:
Find out more about the rules that apply to federally regulated lenders here.
Different rules apply if your federally regulated financial institution has sold to a debt collector. You’ll need to refer to the provincial and territorial laws that regulate debt collection. Depending on your province, you may have additional protections. Find out more about local guidelines here.
Collection agencies are capable of making mistakes. If you think that an agency is trying to collect someone else’s debt, make sure you tell the debt collector as soon as possible. They will be able to tell more about the steps you need to take to correct the error. Make sure you monitor your credit score and report any errors that appear there.
If you have confirmed the debt as legitimate, the only thing left to do is start handling the payments. The government offers several recommendations for how you should interact with debt collection agencies.
You should act with urgency when paying off debt in collections. However, you should be careful not to make any payments to illegitimate lenders. Follow the steps below when paying off debt in collections to avoid mistakes, delays, or scams targeting borrowers in collections.
Cash is not considered a secure way to send debt payments. When you send cash through the mail, there is no reliable confirmation that it was either sent or received. Use cards or transfers whenever possible so you can confirm your payments were sent, with timestamps showing you sent them on time.
Ask for a receipt for every payment if one is not automatically provided. Most debt collectors will automatically send receipts by email or text message if you request it. Contact the collection agency if you are unable to access the receipts you need.
Even if you know that you have debts in collection, you should confirm every collection agent that calls you. They are required by law to provide identifying information, so you should always be suspicious if they can’t confirm details of your original debt.
Once you have started working with your debt collector, stop contacting your original creditor. The collection agency now manages the debt, and contacting your original creditor may cause confusion or misapplied payments.
If you are unable to pay the current balance, you should contact the debt collector as soon as you receive the first payment request. Most debt collectors are highly motivated to work with you if there is a possibility that you’ll pay the full amount eventually. Here are the steps that you can often follow to get a more favorable payment plan:
Always contact your debt collector first if you have trouble managing your payments. These agents often want to work with you to find the terms that are most likely to result in repayment. Remember, that doesn’t mean they are obligated to accept any debt repayment schedule. They can always pursue legal action if you won’t accept a reasonable plan.
It may help if you offer a payment arrangement that fits your needs. Your debt collector may want to negotiate further to resolve past-due amounts or to convince you to pay a small lump sum as proof of your commitment.
If you and your debt collector can agree on a debt repayment plan, make sure to request the offer in writing. Make sure the written offer includes everything you discussed, including the current monthly payment.
It is typical for debt collection agents to request a first payment to confirm you are willing to keep up your end of the agreement. Send this payment by whatever electronic method they make available as soon as possible.
As long as you can continue making your payments, you should have no problems until the debt is resolved. Debt collectors can legally charge extra fees when you underpay on the amounts that you owe. Make sure to keep your payments current to avoid this problem.
If you lose your ability to make the payments you agreed to, contact your debt collectors as soon as possible. You may be able to negotiate a different agreement.
After reading you now understand what to expect when your debt is sold to a collector, and that you will have to pay it as a legitimate debt. You also know your rights when you’re contacted, and what to do if there’s an error.
Are you looking for options to avoid sending a debt to collections? A personal loan at the right time could help you pay off the balance immediately so that your credit report won’t be affected by a collections notice. Contact us today to ask about different options.