What Creditors Can and Can’t Do If You Owe Money in Canada

Juggling debt is hard. Dealing with constant calls, letters, and threats from creditors? Even harder.

If you’re feeling anxious, overwhelmed, or unsure of what’s allowed, just know you’re not alone.

The good news? In Canada, creditors can’t just do whatever they want. In fact, there are clear rules about what creditors can do and what they legally can’t.

And knowing your rights is the first step toward peace of mind and finding the debt solution that actually helps.

What Creditors Are Legally Allowed to Do

Yes, creditors are allowed to contact you if you owe them money. But that doesn’t mean they can keep calling your phone 20 times a day or show up at your door demanding payment.

Here’s what they are legally allowed to do:

1. They Can Contact You About the Debt

Creditors and collection agencies can call, email, or send letters asking you to pay. If your debt is sent to a collection agency, here’s more about what that means. It’s their job, after all. But they’re required to follow provincial rules — and if they don’t, you can report them.

2. They Can Send Your File to Collections

If you don’t respond to your original creditor, they might hand things over to a debt collection agency. This doesn’t mean you’re being sued — just that a third party is now chasing the money. It’s annoying, yes, but still within their rights.

3. They Can Sue You for the Debt

Yes, it’s possible… but not automatic.

If enough time passes without payment, a creditor can take legal action and try to get a court order. That could lead to wage garnishment (where they automatically take payments from your paycheque) or a requirement to pay. But you’ll always be notified first and have a chance to respond.

4. Garnish Your Wages

This one sounds scary — and for good reason. In most cases, a creditor needs to take you to court and get a judgment before they can garnish your wages. But government agencies like the Canada Revenue Agency (CRA) don’t need a court order. Once wage garnishment is in place, a portion of your paycheque can go directly toward your debt.

What Creditors Can’t Do in Canada

Now for the fun part: what they can’t do (even if they try to scare you into thinking they can).

1. They Can’t Harass or Threaten You

Creditors and collectors are not allowed to threaten violence, insult you, or call you repeatedly to the point of harassment. If they cross the line, it’s a legal violation. You can report them and protect yourself.

2. They Can’t Call Your Family, Friends, or Boss

They can contact someone to confirm your contact details, and they can verify your employment with your employer. They’re also allowed to contact a co-signer. However, they can’t disclose details about your debt to your cousin, manager, or anyone else who isn’t directly involved.

3. They Can’t Show Up at Your House or Take Your Stuff

A creditor can’t just waltz into your living room and grab your TV. They need a court order to seize property, and even then, it has to go through the proper legal process.

Filing for Bankruptcy in Canada and How it Affects Your Debt

If you’re out of options and can’t keep up, filing for bankruptcy might sound extreme — but it could be the reset you need. But what happens to you and your debt when you file?

The Automatic Stay of Proceedings

The second you file for bankruptcy, something called a stay of proceedings kicks in — at least for unsecured creditors. That means they have to back off: no more calls, threats, garnishments, or lawsuits.

What Happens to the Debt

Most unsecured debts (like your credit cards, payday loans, and old bills) are wiped out through bankruptcy. Depending on your income, you may have to make surplus income payments for 21 or 36 months — but once those are done, you’re free and clear.

Which Debts Stick Around

Some debts survive bankruptcy, like court fines, child support, spousal support, and sometimes student loans. But most of what’s keeping you up at night? Gone.

Downsides of Bankruptcy

Bankruptcy can feel like a fresh start and for many people, it is. But there are some trade-offs to keep in mind. It stays on your credit report for 6 to 7 years, you might have to give up certain assets, and it could affect job opportunities in industries that require a clean financial record.

It’s not a decision to take lightly, which is why it’s always a good idea to chat with a Licensed Insolvency Trustee (LIT) — a government-regulated debt expert — before jumping in. They’ll help you figure out if it’s the right move or if there’s another way forward.

Other Debt Solutions That Stop Creditor Action

Bankruptcy isn’t your only way out. If you’re looking for something less drastic but still effective, there are other options that can help you get back in control — and with less consequences.

Consumer Proposals

A consumer proposal is a solid middle ground. Check out the pros and cons of filing a consumer proposal. With the help of an LIT you make an offer to pay back part of what you owe to creditors — usually around 30 to 50% — and you get up to five years to do it.

The best part? Once it’s filed, the collection calls stop. This route typically has a smaller impact on your credit score and lets you hold on to your assets.

Debt Consolidation and Credit Counselling

If your credit’s still in decent shape, a debt consolidation loan might be an option. It rolls your debts into one monthly payment, so it’s easier to manage.

And if a loan isn’t on the table, credit counselling might be. A debt management program can still lower your interest and help you budget better, so you’re not figuring it all out on your own.

Know Your Rights and Get Help If You Need It

When the pressure’s on and the calls won’t stop, it’s easy to feel stuck. But you’ve got more options — and more rights — than you might think.

When to Talk to a Licensed Insolvency Trustee

If you’re dealing with legal notices, wage garnishment, or you’re just overwhelmed and don’t know what to do next, it’s time to talk to a Licensed Insolvency Trustee — like the ones at Farber.

They’ll walk you through all your options and help you figure out the best path forward.

Book Your Free Consultation

Whether you’re overwhelmed, curious, or just plain exhausted from carrying the weight of your debt alone — you’re in the right place. A free consultation with Farber is your first real step toward clarity, relief, and a fresh financial start.

You don’t have to live in fear of the phone ringing. Let’s figure this out together. Book a call today.