Getting a call from a collection agency can feel scary. Your stomach drops, maybe you freeze, or maybe you just want the calls to stop! Those reactions make sense, and you are not alone in how you are feeling. You’re also not alone in having debts that have ended up in the hands of a collection agency.
Consumer debt is heavy across Canada right now. Statistics Canada reported that the household debt-to-income ratio hit 179.6% in early 2026. This means that Canadians now owe nearly $1.80 for every dollar they take home. In Q1 of 2025, Equifax reported that more than 1.4 million consumers (1 in 22) missed at least one credit payment during the quarter.
So, let’s walk through what a collection agency is, how they work, and how to deal with them without losing sleep.
What is a collection agency?
A collection agency is a company that works to collect unpaid debts. The company you owe money to (creditor) hires the collection agency to try to collect payment from you. They are a third party that steps in when a bill goes unpaid for a long time. Sometimes the creditor sells your debt to the agency instead. Either way, debt recovery is their whole job.
A collection agency usually only gets paid when it recovers on an outstanding accounts receivable. Debts land in collections from all kinds of places, like banks, credit card companies, and the phone or internet service providers whose services you use every day.
How do collection agencies work?
Most of the time, your creditor tries to reach you first to collect payment or set up a payment plan. If that doesn’t work, they often pass your file to a collection agency. Before the agency calls, they must send you a written notice. This notice lists the name of the agency, who you owe, and how much. Keep that notice for reference.
Once your debt goes to collections, your credit score takes a hit. The agency reports it to the credit bureaus (Equifax and/or TransUnion), which lowers your credit score and shows up on your credit report. A lower score makes it harder to get new credit cards, rent a home, or land a job that checks credit.
When a collection agent contacts you, they may call your phone number, send letters, or email you. One common collection agency tactic is to call often, because their goal is simple: collect the money you owe.
There is good news: they have rules!
Each provincial and territorial government sets its own rules to help protect you. This is called consumer protection, and it matters. A debt collector cannot misrepresent the debt (aka tell you things about it that aren’t true). They can’t chase someone who does not owe the debt. They also cannot start legal action, like taking you to small claims court, without telling you first. Debt collectors must play fair.
The rules vary by province and territory, so it’s worth looking up yours. Here are a few examples:
- British Columbia: a collector can only contact your employer to confirm your job title and employment, and only after giving you notice first.
- Nova Scotia: they cannot contact you more than three times in seven days.
- Ontario: before the first phone call, the agency must send written notice and wait six days before calling or asking for payment.
- Quebec: collection agents must contact you in writing before calling, and can’t call after 8 p.m. or on Sundays.
If a collector breaks these rules, you can, and should, report them. You can also look the agency up with the Better Business Bureau to check its track record before you deal with them.
How to deal with a collection agency
First, take a breath. Then get the facts. When you speak to a collection agent, ask them for their name, the agency name, and a phone number. Ask what the debt is for, the amount you owe, and who the first creditor was. Take detailed notes for your records.
Next, before saying or doing anything else, make sure the debt is really yours. Not doing so could make you liable for debt that’s not yours. Start by checking your bank account, your banking records, and old bills. Look at your credit reports from Equifax and TransUnion. Mistakes happen, and scams do too. If something feels off, read our scam alert guide before you pay a cent.
If the debt is yours, you have options. The best way to pay debt depends on your situation. If you can pay a lump sum, you can often negotiate a lower balance. You can also offer a plan for debt repayment over time. Always get a receipt, and never send cash.
There are also debt help options, like debt management programs and a consumer proposal. If you’re facing financial hardship, it’s a good idea to explore your options. A licensed insolvency trustee can explain choices like a consumer proposal or bankruptcy. An insolvency trustee is trained and licensed to guide you.
What if you ignore the debt?
Ignoring a collection agency won’t make it go away. If you don’t respond, the creditor or agency can take you to court, and the case moves through the courts and the judiciary. You usually get notice first, which is why staying in touch matters.
A court order can lead to wage garnishment. This is when a creditor can garnish wages, so money comes off your paycheque before you see it. A financial institution may also freeze the money in your bank account or savings accounts once there is an order. In some cases, a lender can take back property tied to the loan, like a car. This is called repossession.
Planning ahead helps you avoid all of this. Monitoring your accounts and staying in contact helps keep you in control.
You do not have to face debt alone
Whether you owe a small balance or a large one, help is out there. Take one small step today. Pull your credit report, or write down what you owe. That first move is often the hardest, and you’re here reading this, so you just took it.
If money feels heavy and you are not sure where to start, know that reaching out for support is a sign of strength, not weakness. You deserve a plan that actually works for you. Our Credit Counsellors can help you put that plan together. To get started, call for a free consultation.
