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Ontario has strict regulations to govern debt collection and protect consumers from abusive practices. The Collection and Debt Settlement Services Act (CDSSA) and the Limitations Act, 2002 are the key laws that outline the rules for collection agencies, creditors, and debtors. Here’s what you need to know:
These laws aim to ensure ethical practices while balancing the rights of creditors and debtors.
Ontario Debt Collection Timeline and Rules: A Complete Guide
In Ontario, debt collection is primarily regulated by two key laws. First, there's The Collection and Debt Settlement Services Act (CDSSA), which governs how collection agencies and debt settlement service providers operate. This law outlines requirements for registration, acceptable conduct, and practices that are not allowed when collecting debts. Second, the Limitation Act, 2002 sets a two-year limitation period for most debts. This means creditors generally have two years from the date of default or acknowledgment to initiate legal action. However, it’s important to note that while legal proceedings are restricted after this period, non-legal collection efforts can still continue.
"A collection agency will now include a person who purchases debts that are in arrears (past due) and collects them." – Gowling WLG
Together, these laws establish the framework for how debts are collected and ensure that the process adheres to specific standards.
These regulations also dictate the specific ways collectors can interact with debtors. For example, before making phone contact, a collector must first send a written notice - either by mail or email - outlining the details of the debt, the creditor’s name, and the debtor’s rights. Once this notice is sent, the collector must wait six days before making a payment demand.
"The collection agency is required to wait six days after they send you the letter before they can make another attempt to collect the debt." – Jeffrey Schwartz, Executive Director, Consolidated Credit Counseling Services of Canada
Collectors are also restricted in how frequently they can contact debtors. They are allowed up to three successful contacts per creditor within a seven-day period. Additionally, calls are only permitted during specific hours: between 7:00 a.m. and 9:00 p.m. from Monday to Saturday, and between 1:00 p.m. and 5:00 p.m. on Sundays. Calls on statutory holidays are strictly prohibited. The law also prohibits aggressive tactics, such as using threatening language, applying excessive pressure, or contacting a debtor's employer, family, or friends - except in narrowly defined situations.
These measures are designed to protect debtors from harassment and ensure fair treatment throughout the collection process.
Under the Limitations Act, 2002, creditors have two years from a specific starting point to file a lawsuit and take legal action to enforce a debt. Once this window closes, the debt is considered "statute-barred", meaning creditors can no longer pursue it through the courts.
However, this doesn’t mean the debt automatically disappears. The limitation period acts as a legal defense rather than an automatic dismissal. If a creditor sues for an old debt (beyond two years), you must actively raise the limitation period as your defense. Courts won’t dismiss the case unless you bring it up. Also, while creditors lose the ability to sue after two years, the debt can still appear on your credit report for up to six years from the last activity date.
The two-year countdown begins when the creditor becomes aware - or should reasonably have known - that a loss occurred, the debtor was responsible, and legal action was an appropriate solution. In most cases, this is triggered by one of the following events:
For debts that are payable on demand, the limitation period starts on the first day the debtor fails to meet their obligation after receiving a formal demand for payment. Unless proven otherwise, creditors are assumed to have discovered the claim on the day of the missed payment.
Now let’s look at how specific actions by the debtor can reset this two-year period.
Certain actions by the debtor can restart the two-year limitation period, but they must occur before the original period expires. For instance, making any kind of payment is seen as an acknowledgment of liability and resets the clock. In Neumann v. Hussein et al, 2012 ONSC 5130, the court confirmed that even a single payment can restart the two-year period.
Written acknowledgments can also reset the limitation period. This includes digital communications like emails or text messages, as long as they can be uniquely tied to the debtor. For example, in 1475182 Ontario Inc. o/a Edges Contracting v. Ghotbi, 2021 ONSC 3477, the court ruled that text messages from a phone number linked to the debtor qualified as a "digital signature", effectively resetting the limitation period.
It’s worth noting that partial payments or acknowledgments made after the two-year period has already expired cannot revive the creditor’s right to sue. In Michel v. Spirit Financial Inc., 2020 ONCA 398, the court clarified:
"For an acknowledgement to reset the limitation clock, it must be made before the expiry of the limitation period applicable to the claim".
Ontario's Collection and Debt Settlement Services Act (CDSSA) lays down clear rules for how debt collectors can operate. Before making any calls or demanding payment, collectors are required to send a written notice. This notice must include the creditor's name, the amount owed, and the mandatory disclosure titled "Debt Collection: Information About Your Rights". After sending this notice, collectors must wait six calendar days before contacting the debtor. These initial steps set the stage for stricter rules governing their conduct.
Once the waiting period is over, collectors must follow strict guidelines regarding when and how they can contact debtors. They are allowed to reach out only during the following times:
After the first successful conversation with the debtor, collectors are limited to contacting them three times within any seven-day period, unless the debtor explicitly agrees to more frequent communication.
The law also prohibits harassment and other unethical tactics. Collectors cannot use threatening, abusive, or intimidating language, nor can they mislead debtors with false information. They are forbidden from threatening legal action without proper written authorization from the creditor or sending documents designed to look like court forms. Additionally, collectors may only contact a debtor's employer once, and solely to confirm employment. They can reach out to family, friends, or neighbors only to update contact details - unless those individuals have guaranteed the debt.
If you dispute a debt, you can halt collection efforts by sending a registered letter stating your dispute and requesting the matter be resolved in court. Similarly, if you inform the agency that you are represented by a lawyer or paralegal, the collector must direct all communication to your legal representative. For agencies with 10 or more collectors, it is mandatory to record all calls for one year. Upon written request, they must provide free copies of these recordings within 10 days.
In addition to operational rules, collection agencies in Ontario must meet strict registration and compliance standards. Under the CDSSA, all agencies must be officially registered. To qualify, agencies are required to:
The registration fee is $290, with an additional $290 charged for each branch office.
Agencies are also required to maintain a separate trust account specifically for debtor funds, called the "Collection and Debt Settlement Services Act Trust Account." They must keep financial records for a minimum of six years. Failure to comply with these rules can lead to serious consequences. Administrative penalties can reach up to $10,000. Individuals found guilty of offenses may face fines as high as $50,000 and even imprisonment, while corporations can be fined up to $250,000. Agencies that violate the law or ignore complaints may also be added to a public Consumer Beware List for 21 to 27 months.
These measures are designed to ensure ethical practices and protect debtors throughout Ontario.
When someone doesn’t pay what they owe, creditors in Ontario have several legal paths to recover the debt. These options are guided by Ontario's Collection and Debt Settlement Services Act, which provides a structured framework for debt recovery. The process typically begins with filing a lawsuit, and if successful, results in a judgment that unlocks various enforcement tools.
Before taking legal action, creditors are required to send a final demand letter. This letter may also include requests for prejudgment interest and legal costs. If the debtor still refuses to pay, the creditor must decide which court to approach based on the amount owed.
To start the process, creditors file either a Plaintiff's Claim (Form 7A) in Small Claims Court or a Statement of Claim (Rule 14) in Superior Court. These documents must be served to the debtor within six months. The debtor then has 20 days to respond by filing a Statement of Defence. If no response is received, the creditor can request a default judgment. For clear, undisputed debts, creditors may also seek a summary judgment, avoiding a full trial.
In the 2011 case Combined Air Mechanical Services Inc. v. Flesch, the Ontario Court of Appeal emphasized that summary judgments are effective when sufficient evidence exists to resolve the case fairly without a trial. Once a judgment is secured, it remains enforceable for 20 years, giving creditors access to a range of enforcement tools.
A judgment grants legal rights, but creditors must actively enforce it. As ME Law points out:
"A judgment gives you a legal right - but it's up to you to exercise it. Courts do not automatically collect your money for you".
One of the most common tools is a Notice of Garnishment (Rule 60.08). This allows creditors to redirect funds owed to the debtor - such as wages or bank deposits - through the court system. In Windsor-Essex Catholic District School Board v. 231292 Ontario Ltd., garnishment was upheld as an effective method for enforcing debts.
Other tools include:
Among these options, wage garnishment is one of the most frequently used methods.
Wage garnishment is a popular way to enforce debt collection in Ontario. For most consumer debts, the law caps garnishment at 20% of the debtor’s net salary. However, for child or spousal support, the limit increases to 50%. Certain income sources, like social assistance (Ontario Works), the Canada Pension Plan (CPP), and Old Age Security (OAS), are exempt from garnishment.
To initiate garnishment, creditors need a judgment and must file for a Notice of Garnishment along with an Affidavit for Enforcement Request. These documents are served to both the debtor and the garnishee (usually the employer or bank). Employers are legally required to comply and must send garnished funds to the court, not directly to the creditor. BDO Debt Solutions explains:
"A garnishment always requires that money is paid to the court and never paid directly to the creditor".
While wage garnishment has a 20% cap, creditors can seize up to 100% of funds in a single-owner bank account or 50% in a joint account. Some agencies, like the Canada Revenue Agency (CRA), can bypass court orders entirely. The CRA can garnish up to 50% of a payroll employee’s salary (though 30% is more common). Similarly, the Family Responsibility Office (FRO) can directly garnish wages for child or spousal support.
Timing is critical in these cases. Debtors have 21 days to respond to a Statement of Claim before creditors can seek a default judgment and garnishment order. Delays can lead to complications, such as the expiration of the two-year limitation period or the debtor filing for insolvency.
Once two years pass, creditors lose their ability to take legal action - like filing lawsuits, obtaining judgments, or garnishing wages - though the debt itself doesn’t vanish.
"Even when the period has passed, it does not mean the debt disappears – you still owe the money. This means that debt collectors can continue to call you to try and get you to repay, even though they cannot take legal action against you".
This creates a situation where the debt remains valid but legally unenforceable in court. This limitation not only curtails legal remedies but also impacts how the debt is reflected on your credit report.
Even after creditors lose the right to sue, negative marks from the debt can stay on your credit report for up to six years from the last recorded activity. Once six years have passed, the debt is removed from your credit report entirely. During this six-year window, creditors can still report the debt to credit bureaus, even though they can’t pursue legal action. If a debt remains on your report beyond six or seven years, you should contact the credit bureau to request its removal.
A key point to remember: making even a small payment or acknowledging the debt in writing restarts the two-year limitation period, giving creditors a new opportunity to sue. J. Douglas Hoyes, a Licensed Insolvency Trustee at Hoyes, Michalos & Associates Inc., stresses the importance of using this as a defense:
"The debt still exists and creditors can still attempt to collect the debt through calls or letters... If sued, you must appear in court and raise the limitation period as a defence to prevent a court judgment against you".
Even after the debt is no longer enforceable in court, collection efforts often continue under strict guidelines.
Once the two-year limitation period expires, creditors can still attempt to collect the debt through non-legal means, such as phone calls or letters, as long as they comply with the Collection and Debt Settlement Services Act (CDSSA). Creditors may even sell these "statute-barred" debts to third-party collection agencies. However, threatening legal action for such debts is strictly prohibited since court remedies are no longer available.
Collectors must adhere to CDSSA rules, which include restrictions on contact hours (Monday to Saturday, 7 a.m. to 9 p.m.; Sunday, 1 p.m. to 5 p.m.) and limits on contact frequency (no more than three attempts within seven days). If a collector threatens legal action or wage garnishment for a debt older than two years, you can file a complaint with Consumer Protection Ontario. Samantha Galea, a Licensed Insolvency Trustee at Spergel, explains:
"The debt is still owed however. It will not disappear. Debt collectors will likely still continue to chase you for payment, but for many there is less to be feared when you know that legal action cannot take place".
These rules ensure that CDSSA protections remain in place, even after the limitation period has expired.
Additionally, some financial institutions retain a "right of offset", which allows them to deduct money from your account to cover an old debt if both accounts are held at the same institution.
Ontario's debt collection laws set strict rules to ensure ethical behavior and proper operations in the industry. Here's a closer look at some of the key points.
Collectors must follow clear financial management guidelines. For example, any funds collected must be deposited within two banking days and sent to creditors by the 20th of the following month. Failing to comply can lead to hefty penalties - corporations can face fines of up to $250,000, while individuals risk fines up to $50,000, imprisonment for up to two years less a day, or both. Additionally, administrative penalties for specific violations can reach $10,000.
Every collection agency must register with the Registrar of Collection Agencies, with a registration fee of $290 per office. Agencies with 10 or more collectors are required to record all collection calls and keep them on file for one year.
Collectors must also follow specific steps when contacting debtors. For instance, they must send a written notice and wait six days before making any further contact. They must also stick to designated contact windows, as outlined in earlier sections. The two-year limitation period for legal action is another crucial rule, and this period resets if the debtor acknowledges the debt or makes a payment.
Certain actions are strictly forbidden. Collectors cannot use profane language, apply undue pressure, provide false information, or threaten legal action without written authorization from the creditor. If a debtor disputes the debt in writing, requests legal action, or asks to communicate only through their lawyer or paralegal, collectors must stop contacting them immediately.
These guidelines are designed to balance the rights of creditors with protections for debtors, ensuring fairness and accountability throughout the debt collection process.
In Ontario, under the Ontario Limitations Act, most debts become statute-barred if no payment or acknowledgment has been made within two years. To determine if this applies, check the date of the last payment or acknowledgment on the debt. If more than two years have passed without any activity, the debt is likely no longer enforceable. However, some types of debts may follow different rules, so it's wise to seek legal advice for clarity on specific situations.
To ensure the 2-year limitation period doesn't restart, it's crucial to avoid acknowledging the debt in any form. This means:
By steering clear of these actions, you can preserve the original timeline and avoid extending the limitation period.
If a debt collector breaks the rules in Ontario, you have the option to report them to the Ministry of Public and Business Service Delivery. This organization enforces the Collection and Debt Settlement Services Act (CDSSA). You can file a complaint directly with the Ministry, which has the power to investigate, issue penalties, or even suspend the collector's registration. For help, reach out to their Toronto office or call their toll-free number.
More than a decade of Ivan's career has been dedicated to Finance, Banking and Digital Solutions. From these three areas, the idea of a fintech solution called Debepxert was born. He started his career in Big Four consulting and continued in the industry, working as a CFO for publicly traded and digital companies. Ivan came into the debt industry in 2019, when company Debexpert started its first operations. Over the past few years the company, following his lead, has become a technological leader in the US, opened its offices in 10 countries and achieved a record level of sales - 700 debt portfolios per year.
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