Receivable/Accounts - Information for Credit and Collection Issues

Tuesday, February 8, 2011

The Collection Agency Legal Department – Fact or Myth? Part II: It’s The End of the Line!

So, continuing in this series, let’s assume that legal action is feasible, and someone on the phone is telling you that your wages will be garnished, your bank accounts seized, you will be pulled in front of the court to reveal all your financial assets, or a lien will be placed on your house …

If there’s a judgment in place already, all these things can (and likely will) happen. If someone has a judgment against you, they have a fair amount of power. But before any of these things can happen, a judgment needs to be acquired.

First, if legal action is going to happen, a Statement of Claim needs to be served on you. This Claim will detail how much you owe, and give supporting documentation proving how the debt is owed. This will usually include a contract, invoice, or payment history on account. Now, this Claim can be served on you in a number of ways – the most common are by mail, by registered mail, delivery to your house, or in person.

Once you receive your claim, you have 20 days (possibly 30, depending how you were served) to file a defense. Filing a defense is not free – in Ontario there is a cost of $40, and the form can be found at the link below:

When you file a defense, you have a couple of options. You can try to defend yourself against the claim, and provide supporting evidence why you do not owe the amount. Remember that this is going before a judge, and they don’t know you nor do they care about any facts outside of this case, nor will they take favorably to any emotion presented in your defense, or later in court – if you have solid facts on why you do not owe this claim, you have to present it in a logical manner. Provide copies of any proof or supporting documents.

Another option on the defense is to admit to the amount, and offer payment terms. If you do so, there is a good chance the creditor will accept these terms, or if they do not, and push ahead to receive a judgment, the court will often support your proposed arrangements – as long as it is reasonable to the debt ($50 a month of $15,000 is not likely reasonable -- an amount slightly less than what you would be garnished is far more likely to be accepted).

The last option is to admit to a portion of the debt, holding the balance in dispute, and offer arrangements on the amount you agree to. Obviously if the creditor strongly feels you owe the complete amount, they may ignore your defense and push forward, but if you are trying to resolve things voluntarily there is a good chance the court will support your defense if things go further.

If you don’t file a defense, the creditor (or collection agency) can file for default judgment, and can start acting on it, as above. In my years of experience, 90% of the small claims court actions I undertook *never* had a defense filed, and the debtors were shocked when their wages were garnished – if you don’t file a defense, you do not get your imagined day in court to fight the claim. Stand warned.

As well, if a judgment is acquired, the creditor or collection agency can claim the original amount owed, plus the costs of filing the claim (likely another $150-250), and pre-judgment interest (interest accumulated from the time of the debt up to the date of judgment), and post-judgment interest (ongoing interest that will accumulate on the judgment until it is paid).

Our next segment will talk about your (potential) day in court and what can happen …

If someone is threatening you with pending legal action, understand that horrible things can’t happen over night. If they imply that they can, they may not be keeping in the spirit of the Collection Agencies Act. However, if someone is clear with you, and advises that they have permission to take legal action, and that a judgment can be acquired in the next 30 days, they are entirely correct, if they file a claim as above, and a defense isn’t filed.

Small Claims Court Forms -

Small Claims Court Fees -


  1. I owe a large sum (~$50K) that is 2.5 years old; last month a collection agency contacted me at work and informed me my wages would be garnished, they also sent me a legal demand letter but I have yet to receive a court summons (which I plan to defend with SOL).
    a) Which court will they likely take me to (small claims or other?)
    b) Why didn't they do this before the SOL expired?
    c) Is this likely an empty threat? Is it possible to set a court date without my knowledge, i.e. without receiving a summons?


  2. Hello sir!

    Your balance would exceed small claims court actions in all provinces (in Ontario it is $25,000).

    This is likely an empty threat, but if you have acknowledged the debt in the last two years, the statute of limitations may be extended, or it could fall in a special category of limitations such as property damage or a student loan.

    If the agency plans to garnish your wages, you need to be served with a statement of claim. However, the limtiation on reporting the debt to your credit bureau will be six or seven years, so your debt may obstruct you from obtaining credit or passing screening checks on property rentals, bank products, or applying for positions of employment that allow credit checks.

    If you have any other questions, feel free to post here or email me directly at