Ask the Expert: Decoding collections legalise

Having debt go to collections is a tricky situation. There is a lot of misinformation floating around about what to do when this happens. Listening to the wrong information can mean unintentionally making matters worse. Financial coach, Sherry, walks our reader, Trent, through how to navigate this very situation while avoiding exacerbating the issue and what his rights are as a consumer.

The question

Hi Experts,
I need advice. I have a debt that I didn’t know about until a couple of weeks ago. I learned about it because now I’m being threatened with being sued. I’ve gone ahead and put in a complaint against the company, but still need some more help. I’ve spoken with a couple of advisors and keep being told I can’t be helped cause my debt is passed the Statute of Limitations, which in Nova Scotia is 2 years.
I need to know what my rights are and what they can do. Can they take me to court and garnish my wages for a debt that’s been open since April 2019? I can’t afford to pay the debt off because they are adding a ridiculous amount of interest. It’s gone passed the company calling me now. Instead, I got a call from collections saying to advise them on when to expect payment, or they will decide from there what actions they will take. Please, I hope someone can give me some advice about what I can do.
Trent, R.
Cape Breton, NS

The answer

Hey Trent,

Let me start by saying you’re not alone in dealing with this situation. I’m glad you reached out to get help and better understand what action the collections agency can take. Let’s break this down and figure out how to handle this challenging situation.

What are debt collection agencies?

Their business is all about taking over debts that usually have significantly overdue payments. They buy debts from other companies, typically for significantly less than the amount owed. Creditors like credit card companies and telecom providers often decide to sell debts to collection agencies when trying to collect is no longer worth their efforts. By selling the debts, they get something for themselves, and the collection agencies profit. Their profit comes from doing everything they can to collect as much as possible for each debt. This is why they can be so relentless, and it creates a lot of stress when you’re getting calls and threats.

Here’s a quick example:

A customer has $1,000 in credit card debt. They haven’t made a payment despite multiple attempts by the credit card company to collect.
The credit card company decides to sell the debt to a collection agency. The debt is sold for $150. *Usually, outstanding debts are combined and sold as part of a larger bundle of debts.
The collection agency then begins to contact the debtor and attempt to collect the outstanding debt.
To be profitable, the debt collectors must collect more for the debts than they paid. In this example, if they can collect $500, they profit $350. This is why they are open to negotiating after buying debts.

Can they sue you?

The advisors you spoke with are partly right in that there are limitations on what they can do after two years. In Nova Scotia, the limitation period for most debts is two years. However, the date they use is not when the debt was opened; it’s based on the most recent activity. So, if you haven’t made a payment or acknowledged the debt in writing in the last two years, they can’t take you to court. The key here is “acknowledged the debt.” This can take several different forms and can give the collections an opening. If you’ve made a payment or agreed to a payment plan since they started to contact you, then that limitation period could reset. If you haven’t, the threat of a lawsuit is just that, a threat.

Important to note: The debt doesn’t disappear after two years. It’s still there, and they can still contact you to try and collect it. The difference is that, after two years, they can’t get a court order to garnish your wages or seize your bank account.

How to deal with debt collectors

Dealing with debt collectors can feel overwhelming, but there are laws to protect you. In Canada, the Consumer Protection Act governs how debt collectors can behave. Here’s what they can’t do:

Harassment: They can’t call you excessively or use abusive language.
Misrepresentation: They can’t pretend to be a lawyer or make threats they can’t legally act on.
Contacting others: They’re not allowed to contact your family, friends, or employer (unless it’s to get your contact information).
Contact you at all hours: Collection agents are not allowed to contact you before 7:00 am or after 9:00 pm. On Sundays, acceptable hours are between 1:00 pm and 5:00 pm, and no calls are allowed on holidays.

Stop all phone calls by requesting that they only contact you in writing. To make this request, you must send it via registered mail. Include your contact details with the request.

If you feel they’re crossing the line, file a complaint with Nova Scotia’s Consumer Affairs Division. Include as much detail about the rules they are breaking as possible.

Should you pay?

This is where it gets tricky. If the debt is legitimate and you can put some funds towards it, you can negotiate with the collection agency. It is common for collections agencies to settle for much less than what is owed, especially if they have stacked lots of fees onto your debt balance. Start with a debt verification letter to confirm that the debt is valid. They are required to send this to you after they purchase the debt, but if they haven’t, you can request it. Once they provide proof, you can offer a debt settlement. A debt settlement is an offer to repay less than what you owe. This can happen through either a lump sum payment or through making an agreed-upon payment. They often accept less than what you originally owed.

A few things to keep in mind:

Get it all in writing. Don’t send any payment until you have the agreement, and thoroughly read it before signing.
If you negotiate a debt settlement with payment terms, failing to make payments can void your agreement. This provides the collections agency with more options. This happens because making payments means the loan is no longer beyond the limitation period.

However, if paying off the debt is out of reach and you’re confident that the limitation period has passed, you’re not legally obligated to pay it. Be cautious; even discussing a payment plan could reset the limitation period.

What about your credit score/report?

Debts can stay on credit reports for up to seven years from the date of your last payment. While the debt may no longer be enforceable in court, it can still impact your credit score. When a debt is transferred to a collections agency, your score will typically drop because this is a negative item on your report. Unfortunately, there’s not much you can do to remove it from your credit file unless there’s an error.

Tips for protecting yourself

Document everything: Keep records of all phone calls, letters, and emails from the collection agency. Write down who you spoke to and what was said.

Communicate in writing: Request that all future communication happen in writing. This reduces the stress of phone calls and gives you a paper trail.

Know your rights: Familiarize yourself with the rules for debt collectors in Nova Scotia. The Collection Agencies Act spells out what they can and can’t do. Since knowledge is power, you can also learn more about consumer protection laws for credit card holders.

Don’t share personal info: Never give out your banking details or any other sensitive information over the phone.

Next steps

You’ve already taken an important step by asking questions and filing a complaint. Now it’s time to decide if you have the financial capacity to negotiate a settlement. If that is the path you’d like to take and it feels overwhelming, consider speaking with a credit counsellor to help you explore your options.