If you’ve fallen behind on debt payments, you may wonder, “How much money must I owe before my creditor will sue me?” or “At what point will a creditor take me to court for unpaid debts?” The simple answer is that a creditor can sue you for any amount of debt you owe. It can be $50 or $500,000; the decision of if and when is up to the creditor.
While the prospect of a lawsuit and other legal measures is possible for unpaid debts in Canada, the truth is it rarely takes place. The reason is that the process is expensive and time-consuming, prompting creditors to carefully weigh the costs and benefits of suing debtors.
That being said, it’s good to have an idea of how much debt you would have to owe before a creditor may decide to take you to court. It’s also worth understanding the other factors that increase the risk of getting sued by a creditor. This article will explore both concepts.
This article is educational and not legal advice. If you need advice about your specific situation, consider speaking with a lawyer. If you’re considering a consumer proposal or bankruptcy, those can only be administered by a Licensed Insolvency Trustee.
Is there a minimum amount of debt you need to owe for a creditor to sue you?
No. There’s no minimum amount of debt you must owe before a creditor takes legal action against you to collect it. There are also no laws in Canada that prevent lenders from collecting on a debt based on the amount owed.
Every lender and creditor sets its own threshold for suing over unpaid debts. There’s no universal, fixed amount that triggers lawsuits or other legal enforcement measures. Therefore, as the debtor, you won’t know when or if you can expect to appear in court over past-due debts.
However, it’s possible that the larger the creditor is in terms of revenue and their lending portfolio, the higher this threshold may be. For example, in this Reddit thread, one user who claims to have worked in the collections department at a major bank said that a lawsuit wasn’t considered unless the debt owed was more than $15,000. It also demonstrates how expensive it can be to recover unpaid debts through the courts.
At what point is the debt amount considered significant for a creditor to sue?
A creditor is more likely to escalate their collection efforts to legal action if the total amount of debt owed is large. What constitutes “large” varies from lender to lender. It depends on factors such as their internal collection policies and the extent to which the unpaid debt could harm their business.
Here’s a good way to think about the size of the debt and how it may influence the path a creditor takes.
Smaller debts (often a few hundred to a few thousand dollars). The creditor may rely on internal collection calls or an outside collection agency to recover the debt. They might sue, but only if they believe going through the court system will be effective, cheap, and straightforward. Of note, the small claims court system is a cheaper legal option which allows smaller companies to pursue smaller amounts more efficiently, which may increase risk of legal action
Mid-sized debt (commonly several thousand to tens of thousands). This is where lawsuits become more common as the potential recovery can justify the cost of legal action. The creditor may incur court filing fees, legal representation, and enforcement fees.
Large debts (multiple tens of thousands). Higher balances increase the likelihood of persistent collection efforts, including lawsuits and post-judgment enforcement. A mortgage is a type of loan where, if you fall behind, it could result in serious legal proceedings by your lender, including foreclosure on your home.
What other factors make a creditor more likely to sue you for unpaid debts?
As mentioned previously, the larger the debt you owe, the more likely your lender will escalate their collection efforts beyond calls and letters.
However, the size of the debt isn’t the only factor that influences a creditor’s decision to take the matter to court.
A question many creditors ask when deciding whether to pursue you for unpaid debts is: “will the outcome be worth the time, money, and effort in taking legal actions to collect this debt?” If the answer is “yes,” they will proceed, which means you may find yourself embroiled in a court battle. If the answer is “no,” they will write off the debt and take the loss on their books.
Here are some factors that increase the risk of your creditor suing you and enforcing payment through court actions:
You earn a steady income. Your earnings can potentially be garnished through a court order after the creditor wins a judgement.
You own significant assets. The creditor can register a lien on your property and potentially force its sale to pay off the debt.
You keep funds in identifiable bank accounts. These funds can be withdrawn from your account and sent to the creditor once a judgement and garnishment order is issued.
You can be found and served with court orders easily. In other words, the creditor knows your legal name, address, phone number, and other personal information.
You currently reside in Canada. Being sued is higher if you live in Canada, since creditors don’t have to deal with a foreign legal system.
You have not disputed the debt, and the loan contract is valid. There’s a legitimate loan agreement with your signature, assets have been pledged as collateral, you’ve acknowledged the debt to a collection agent, etc.
The debt account is fairly recent. Creditors have a limited amount of time to sue you for unpaid debt in Canada due to the Statute of Limitations. For example, in Ontario, debt collectors have only two years from default to recover a debt through the court system. There are some ways this two-year period can be reset, so we encourage you to learn more about how long lenders and creditors can pursue past-due debts.
The legal and administrative costs are low. These costs include court filing fees, enforcement fees, and legal representation expenses.
What to do if creditors are chasing you for debts you can’t afford to pay
Creditors may take you to court for past-due debts if the amount owed is high and the estimated cost, time, and effort of collection is low. Fortunately, most debts don’t check these boxes. As a result, lawsuits and other legal enforcement tactics in Canada over unpaid debts are rare.
However, what if your situation is such that your creditor is fully prepared to take you to court? What if they already warned you that they are going down this route?
There are various ways to minimize the risk of creditors filing lawsuits against you, garnishing your wages, freezing your bank account, etc. One solution is private debt settlement, where you negotiate to pay less than you owe with the help of a debt settlement company. Others involve getting a debt consolidation loan or enrolling in a debt management plan (DMP).
These methods can work for some people. But for others, they may not provide the debt relief to avert legal action, nor lower the debt owed in any meaningful way.
That’s why it’s to your advantage to speak with a Licensed Insolvency Trustee before you engage in debt settlement talks with your creditors or explore ways to consolidate your debts. You may have other, more effective and long-lasting options available to improve your debt situation and stop creditors from suing you.
At David Sklar & Associates, we’ve been helping people across Ontario solve their debt problems since 1997. During your free consultation, we’ll walk you through all your options, including formal solutions like a consumer proposal and personal bankruptcy. If you’re being pursued aggressively by creditors and can’t afford to pay, contact us today for a free consultation.
FAQ: When Can a Creditor Sue You for Debt in Canada?
Yes. A creditor can sue for virtually any unpaid amount. There is no legal minimum debt threshold in Canada that prevents a creditor from starting a lawsuit. Whether they do so usually depends on their internal policies and whether they believe legal action is worth the cost.
No. There is no fixed dollar amount that automatically triggers a lawsuit. A creditor may decide to sue over a relatively small balance or a very large one, depending on the circumstances.
In many cases, yes. As the balance increases, a creditor may be more willing to pursue legal action because the potential recovery may justify court costs, legal fees, and enforcement expenses. Still, there is no universal rule.
Not always. Many creditors first try internal collection efforts or place the account with a collection agency. Legal action may come later if those efforts do not lead to repayment.
Lawsuits may be more likely where the debt is larger, the documentation is clear, and the creditor believes recovery is possible. Secured debts, such as mortgages, can also lead to serious legal consequences if payments are missed
A creditor may be more likely to sue if:
you have steady income that could potentially be garnished,
you own assets,
you have money in identifiable bank accounts,
you can easily be located and served,
the debt is recent,
the debt is well documented, and
the cost of legal action appears worthwhile.
A creditor may be able to garnish wages, but generally only after obtaining a court judgment and following the required legal process. Wage garnishment rules vary by province.
Potentially, yes. If a creditor obtains judgment and the proper enforcement order, they may be able to take steps against funds in a bank account, depending on provincial law and the type of funds involved.
In some cases, yes. If a creditor gets judgment, they may be able to register that judgment against certain property, depending on the province and the nature of the asset.
It can. If you live in Canada, a creditor may find it simpler to serve documents and proceed through the local court system than if you live outside the country.
In Ontario, the limitation period is often two years from the date the claim was discovered, although the exact timing can depend on the facts and certain actions may affect that period. Because limitation issues can be complex, this article is educational only and not legal advice.
It may be, depending on what happens after the default. For example, certain acknowledgements or payments can affect limitation periods in some situations. Legal advice may be appropriate if timing is an issue in your case.
No. A delay does not necessarily mean the creditor has decided not to sue. Some creditors wait while trying other collection methods first.
Do not ignore court documents or formal legal notices. You may wish to speak with a lawyer if you need legal advice about a lawsuit. If you are exploring debt relief options such as a consumer proposal or bankruptcy, those can only be administered by a Licensed Insolvency Trustee.
A consumer proposal or bankruptcy may stop many collection actions through a legal stay of proceedings, depending on the type of debt and the circumstances. Only a Licensed Insolvency Trustee can administer these proceedings in Canada.
No. Debt settlement is a private arrangement and is not the same as a consumer proposal under the Bankruptcy and Insolvency Act. A consumer proposal is a formal legal process that can only be filed through a Licensed Insolvency Trustee.
No. This content is for general educational purposes only and is not legal advice. For advice about a lawsuit or your legal rights, consider speaking with a lawyer. For information about consumer proposals or bankruptcy, speak with a Licensed Insolvency Trustee.
