What is Collections?

You may have heard of a debt being “sent to collections”, but what does collections mean? And, if you have a debt that’s gone to collections, what does that mean for you?

A debt that has “gone to collections” means that the debt (a loan, credit card, line of credit or even unpaid bills) has gone unpaid for a significant amount of time, and is typically more than 90 days overdue. When a debt gets sent to collections, the lender has decided that “normal” methods for collecting payment, perhaps calls from customer service representatives or branch employees, are not working. Instead, the debt is sent to a separate department or a completely separate company that is focused on receiving outstanding payments: debt collections.

If this has happened to you or someone you know, or if you’ve been told it’s a possibility, don’t panic  –  you’re not completely out of options. While a debt going to collections is never positive, you may still be able to create a payment plan that works for you.

The first step is to be an informed borrower, so we’ve created this article to help you understand what happens when a debt gets sent to collections, how collections works, and what your rights are when interacting with a debt collection agency or department.

Once a debt is sent to collections, it receives the focus of a team that is completely dedicated to getting the money back. If you find out a debt of yours is going to collections, you can anticipate the following:

  • You’ll receive a written notice about the debt, telling you the collection agency (or department’s) name, the name of the person or business you owe money to, and how much money you owe. The collection agency must make a reasonable attempt to send this notice before they start calling you about the debt.
  • Next, you’ll receive a call from the debt collection agency.
  • Before making payment arrangements, verify the call. You’ll want to confirm the name of the person calling, the agency’s name, their phone number, and all the information about your debt (how much you owe, who lent it to you and when you borrowed the money). Go back through your loan documents to review all of the information and confirm it’s correct before making payment arrangements. Staying informed will help you avoid fraud.
  • If you think the debt isn’t yours or a mistake has been made, tell the collection agency and your original lender as soon as possible. You’ll also want to check your credit report for any errors.
  • Your credit score will go down as soon as a debt is sent to collections. This can impact your future ability to borrow money, as well as the interest rates you’re offered, insurance costs, and even landlord approvals. Keep in mind that while you never want to damage your credit score, you can always work to improve your credit score over time in the future.

If your debt has gone or will be going to collections, the only way you can truly resolve the issue is to pay off the debt. If you’re able to, be proactive. Call your lender as soon as possible to try to make payment arrangements before your debt gets sent to collections. Even if you can only make minimum payments, or partial payments, your lender is likely more than willing to work with you to get the debt back on track. Remember – sending your debt to collections is a last resort for your lender, so they are usually open to helping create a plan that works for both parties.

If your debt has already gone to collections, you can still be proactive. Even if you’re not able to pay off the debt in full, reach out to the collections agency. Explain why you’re unable to pay the debt back immediately, and offer a payment plan (for example, monthly payments). Ideally, you should include a first payment to demonstrate your commitment to repayment.

When paying back a debt that has gone to collections, you want to avoid confusion and protect yourself by being as clear as possible on how much you pay, when. We recommend you:

  • Never pay in cash
  • Ask for payment confirmation whenever possible
  • Only deal with the debt collector who called you
  • Only contact the collector, and not the lender who originally lent you the money

Yes, your debt payments are extremely late but that does not mean you lose your rights as a borrower. Collection agencies must adhere to the following rules:

  • Generally, a debt collector can only contact your friends, employer, relatives or neighbours to get your telephone number or address unless:

1) The person being contacted co-signed on your loan (or was a guarantor)

2) You’ve given consent that they may contact the person, which is followed up with written or electronic confirmation of your consent

3) Your employer is asked to confirm your employment

  • Collectors can only call Monday-Saturday between 7a.m.-9p.m. or Sundays between 1p.m.-5p.m., and not on statutory holidays
  • Every time they call, the collector must identify themselves
  • Collectors must conduct themselves ethically, honestly and professionally

Collectors cannot:

  • Suggest anyone else should pay your debts, unless that person co-signed on your loan
  • Use threatening, intimidating or abusive language
  • Apply excessive or unreasonable pressure on you to repay the debt
  • Misrepresent the situation or give false or misleading information
  • Call on your cell phone, unless that’s the number you’ve given as your contact number
  • Add additional collection-related fees to your amount owing, except legal fees or fees for non-sufficient funds on payments you submit. This does not include interest, which likely continues to accrue.

Nobody wants to have a debt that winds up in collections, but sometimes it happens. Knowing what you can do before a debt hits collections (for example, when you think a payment might be late) is your best defence, however if you are just realizing your payments have gone past simply being “late”, know there are still options available to you. For the time being, it may be best to focus on clearing your debt and put a halt on plans to save money.

The longer you ignore your debt or delay payments, the more the collectors will call, and the higher your debt will climb – interest continues to accrue on your debt until it is paid. Continued non-repayment can also wind up with you in court, as collectors can sue if their calls and letters go ignored.

Have more questions about debt collection agencies, and the impact a debt in collections can have on your credit score? Learn more on the Government of Canada’s website here.