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The Dangers of Paying Collection Companies: What You Need to Know

Collection companies

Key Takeaway

Paying debt collection companies can be a difficult decision. It is important to be aware of the potential risks of paying and not paying them. It is also important to remember that there are other options available for resolving debt. If you have other debts you may want to consider a solution for all of them. Speaking with a financial advisor or Licensed Insolvency Trustee can help you explore all your options.

Paying off outstanding debts can be a difficult process. It often involves navigating a complex web of creditors and debt collection agencies. In this article, we will explore the dangers of paying debt collection companies and provide tips and strategies for avoiding them.

Introduction - What are Debt Collection Companies?

Debt collection companies or debt collectors are organizations that specialize in collecting overdue debts from individuals and businesses. These debts can be unsecured debts such as credit cards, lines of credit, corporate debt, car loans and more. Debt collectors are hired by creditors such as financial institutions to collect the money they are owed. They use various tactics such as phone calls, emails, and letters to attempt to collect past-due payments. They are generally paid a commission based on the amount of money they can collect.

In Canada, the collection industry is regulated by provincial and territorial governments. Each province and territory has its own legislation and regulations that apply to collection agencies and debt collectors operating within its borders.

How Do Debt Collection Companies Work?

When a creditor hires a collection company, they provide them with information about the debtor, such as their name, address, and phone number. The collection company then attempts to contact the debtor and negotiate a payment plan. If the debtor does not respond to their attempts to contact them, they may file a lawsuit against the debtor.

The collection company may also contact the debtor's employers, relatives, and friends in an attempt to locate them and collect the debt. Furthermore, they may report the debt to the major credit bureaus, which can hurt the debtor's credit score.

How to Deal With Them?

Financial stress

If you are contacted by a debt collection company, it is important to remember that you have rights. Below are the legislations in Ontario that apply to the collection and debt settlement:

The Collection and Debt Settlement Services Act

This act sets out rules that collection agencies must follow when collecting debts from consumers. It requires them to be licensed, prohibits them from using certain practices, and sets out the information that they must provide to you when contacting you about a debt.

Under this Act, collection companies are prohibited from using certain practices such as using threatening or intimidating language or making false or misleading statements. They must also provide certain information to consumers when contacting them about a debt such as a creditor's name and the amount outstanding. Lastly, debt collectors must not contact a consumer more than three times per week to collect a debt, unless the consumer has provided written consent.

The Personal Information Protection and Electronic Documents Act (PIPEDA)

This federal law applies to collection agencies and debt collectors when they collect, use, or disclose your personal information in the course of their business. It requires them to obtain your consent before collecting, using, or disclosing your personal information, and gives you the right to access and correct any personal information they have about you.

The Ontario Consumer Protection Act

This act protects consumers in Ontario and sets out rules for businesses that sell goods or services to consumers. It prohibits businesses from engaging in deceptive or misleading practices and gives you the right to cancel certain contracts within a specified period.

It is important to read any correspondence you receive from the collection company carefully. Do not sign any documents without fully understanding the terms and conditions. If you are unsure of something, ask the collection company to explain it to you in writing.

Statute Barred Debts

In Ontario, a statute-barred debt is a debt that is so old that the creditor can no longer take action legal action to collect it. This means that the creditor cannot sue the debtor (the person who owes the debt) or garnish their wages to collect the debt.

In Ontario, the Limitations Act sets out the rules for determining when a debt becomes statute-barred. According to the Act, a debt becomes statute-barred if the creditor has not taken any steps to collect it within a certain period, which is known as the "limitations period." The limitations period depends on the type of debt and the circumstances under which it was incurred. For most unsecured debts, the period is two years from the date of the last payment or written confirmation of the debt from the debtor.

Once a debt is statute-barred, the creditor can still ask the debtor to pay it, however, the debtor is not obligated to do so. This means the creditor cannot take legal action to collect the debt, but the debtor can still choose to pay it voluntarily.

What Are the Risks of Paying and Not Paying Debt Collection Companies?

Paying a collection company may not always be the best option. When you pay a collection company, they will usually report the debt to the credit bureaus as “paid in full". This can help your credit score. Once you pay a collection company, the debt will be removed from your credit report after six years. Also, paying them will stop the phone calls and emails and prevents any legal action.

However, the collection company may not be legitimate or have inaccurate information on your debt. The debt could also be statute barred so they may not be able to sue you to collect the outstanding amount. Furthermore, if you enter into a payment plan with a collection company, you may be required to pay extra fees or be subject to interest rates. These fees and interest payments can quickly add up and make it difficult for you to pay off the debt.

If you don't pay them then you will continue to receive the collection calls, but the collection account will be removed from your credit report after six years from the date of the last activity. There is also the risk they sue you to obtain a judgment to garnish your wages, but is this unlikely if the amount owed is small. Either pay in full or don't pay at all because as per the statute barred rules in Canada, a partial payment will restart the limitations period and allow the company to sue in the future.

Tips for Avoiding Debt Collection Companies

The best way to avoid dealing with debt collection companies is to pay your bills on time. Late payments can hurt your credit score, which can make it more difficult to get approved for loans and credit cards.

It is also important to check your credit report regularly. This can help you identify any debts that may have been sent to debt collection companies. If you find they have been sent to debt collection companies, contact the creditor immediately and attempt to negotiate a payment plan.

Strategies for Resolving Debt


The best way to resolve debt is to negotiate with your creditors directly. If you cannot pay the full amount of the debt, you can negotiate a lower payment. This can help you avoid dealing with debt collectors and, in some cases, can help your credit score.

It is also important to remember that creditors are usually willing to work with you. If you are having difficulty making payments, it is important to contact the creditor as soon as possible and explain your situation. Once your account has been sent for debt collection, the original creditor has likely written off your debt and is not expecting to receive much from you. Therefore, they may be more open to negotiating a reduced amount to pay off the debt. You may also be able to negotiate a reduced amount with the collection company.

Alternatives to Paying Debt Collection Companies

If you are unable to pay a collection company, there are other options available:

Settlement Offer

You could make an offer to the original creditor such as the financial institution or collection company for a settlement amount to pay off the debt. Try to negotiate a lump sum payment at a reduced amount such as 20 to 30 cents on the dollar for what is owed. This will provide relief that the debt is paid off and collection activity will stop. Make sure to have the company record your debt as paid with the credit agencies so it updates your credit report.

Consumer Proposal

If you have multiple debts in collection and other unsecured debts then you could file a consumer proposal with a Licensed Insolvency Trustee. All of your debts could be consolidated into one monthly payment with no more interest accruing. Depending on your income and assets, your total amount owed could be reduced. A consumer proposal may be worth it as this option will include all debts in collection and stop all collection activity against you. It may be the solution to a larger issue than just one debt collection company contacting you.


Paying debt collection companies can be a difficult decision. It is important to be aware of the potential risks of paying and not paying them. It is also important to remember that there are other options available for resolving debt. If you are unable to pay a debt collection company in full, you may be able to negotiate a payment plan with the creditor or speak with a Licensed Insolvency Trustee for more options.

If you would like to have a free, no-obligation consultation to discuss your financial situation and if a consumer proposal is the right option for you, we would be happy to speak with you.



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