The 4 Stages Of Debt Collection

2019-09-25   minute read

Randy Kobbert

Debt Solutions

Whether it’s due to a job loss, marital separation or spending beyond your means, debt and interest costs can quickly become unmanageable. If you owe money and are having difficulties paying them back in a timely manner, you can expect lenders to be aggressive.

Person talking on their cellphone looking over paperwork

Stage 1

This occurs when payment is fewer than 30 days late. Many lenders will advise of the missed payment by including a note with your regular bill asking the overdue amount be included with your current payment. Or you may receive a special letter.

Stage 2

For debts between 30 and 90 days late, lenders will typically seek a payment arrangement in a letter — and potentially frequent follow-up phone calls.

Stage 3

Your lender may advise you that your account has been written off and sold to a collection agency. If so, you can expect much more aggressive correspondence from a collection agent.

Once assigned to collections, the delinquent account(s) will remain on your credit report for six years. Expect questions relating to your employment / income, assets and other creditors, as the agent may seek information to register a lien against your assets or garnishee income sources, should a court judgment follow.

Stage 4

At this stage, accounts are typically referred for court litigation. This begins with a formal demand to repay the full balance within 15 days if you have not already done so. A law firm may issue a statement of claim advising that your account will be heard in court and that you have an opportunity to file a statement of defense.

At the court hearing, a judgment may be made against you to repay your debt with interest, payable at a prescribed rate plus legal costs incurred for the application by the lender. With a judgment, the lender can compel you to an Examination for Discovery, requiring you to provide information under oath about your income and assets. The creditor may garnishee your income at prescribed amounts and register a lien against your assets.

What Are Your Options?

The first step in dealing with debt collection is taking stock of your financial situation. If creditors are in the early stages of debt collection, you could consider creating a budget that builds in systematic repayment of your debts; selling assets; arranging an informal settlement with creditors or getting a bank consolidation loan.


If your problems have progressed beyond this stage, your debt may be more than you can manage on your own. A Licensed Insolvency Trustee (LIT) can explain all available legal options — which may include submitting a Consumer Proposal to creditors to settle your debt or filing an assignment into Bankruptcy — to stop the debt collection process. An LIT can help you find Life-Changing Debt Solutions that will allow you to move forward with your life.

Consultation icon