What Happens If I Stop Paying My Debt in Canada?

Financial challenges can make it difficult for many Canadians to keep up with debt payments. Rising interest rates, unexpected expenses, and reduced income all contribute to situations where payments are missed or delayed. When this happens, many people ask the same question: What actually happens if I stop paying my debt?

This guide explains, step-by-step, the consequences of stopping payments in Canada, how long it takes for creditors to act, and what options are available to protect yourself.

Missing Payments: What Happens First

The consequences of stopping payments depend on the type of debt, how long the account remains unpaid, and the creditor’s policies. However, the progression is generally similar across most credit products.

Stage 1: First Missed Payment (0–30 Days)

• You may receive reminder emails or notifications

• Late fees may be added

• Your credit score may be affected if the payment is more than 30 days late

At this point, most creditors consider the account “past due,” not delinquent.

Stage 2: Continued Missed Payments (30–90 Days)

When payments remain unpaid for 1–3 months, consequences become more serious:

• The creditor may call more frequently

• Additional fees and interest may be charged

• The account may be reported as delinquent to credit bureaus

• Your credit score will drop further

This is the stage where most people begin experiencing noticeable financial stress.

Stage 3: Account Goes Into Collections (90–180 Days)

If the account remains unpaid for several months, the creditor may:

• Assign the debt to a collection agency

• Sell the debt to a third-party collector

• Begin persistent collection calls

• Send written notices requesting payment

• Apply more pressure to resolve the debt

Once the debt enters collections, it appears on your credit report and can stay there for up to six years, even after payment.

How Collection Agencies Operate

A collection agency has the legal right to contact you to recover the debt, but there are strict rules they must follow.

They cannot:

• Harass or threaten you

• Contact you at unreasonable hours

• Discuss your debt with friends, neighbours, or employers

• Add unauthorized fees

• Misrepresent the amount owed

They must:

• Identify themselves

• Provide written notice of the debt

• Communicate according to provincial regulations

Understanding your rights helps reduce stress and allows you to manage the situation more effectively.

Can You Be Sued for Not Paying Debt?

Yes, but lawsuits are usually a last resort. Before a creditor sues, they typically attempt:

• Multiple phone calls

• Written notices

• Negotiation attempts

• Assigning the debt to collection agencies

If a lawsuit is filed, the creditor may attempt to obtain:

• A judgment

• Wage garnishment

• Bank account garnishment

• A lien against property (in certain cases)

However, not all debts are eligible for legal action, and many collectors do not pursue lawsuits for smaller balances.

How Stopping Payments Affects Your Credit Score

Stopping debt payments can reduce your credit score significantly, especially if accounts reach 60–90 days past due.

Consequences include:

• Delinquency marks

• Collection entries

• Lower credit limits

• Reduced approval chances for future loans

• Increased interest rates

Despite this, credit can be rebuilt once debt is addressed. Many people see improvement within 6–12 months of taking corrective steps.

What Happens If You Ignore Collection Agencies?

Ignoring collection attempts may lead to:

• More frequent calls

• Letters warning of further action

• Potential legal escalation

• Long-term credit damage

• Difficulty qualifying for future loans or mortgages

Avoiding the situation does not make it disappear. In many cases, it becomes more difficult to resolve.

What If You Cannot Afford to Pay?

If your financial situation makes repayment impossible, ignoring the debt is not your only option. Canadians have several legitimate ways to manage unpayable debt.

Option 1: Debt Relief Program

Debt relief can:

• Reduce the total balance

• Freeze or lower interest

• Stop collection calls

• Create affordable monthly payments

• Provide structured repayment over 1–3 years

This is ideal for individuals who cannot qualify for consolidation loans.

Option 2: Debt Consolidation Loan

A single loan pays off multiple debts, but approval often requires:

• Good to fair credit

• Stable income

• Low debt-to-income ratio

This option is limited if credit is already damaged.

Option 3: Informal Negotiation

Creditors may accept:

• Lower settlement amounts

• Extended timelines

• Reduced interest

• Temporary hardship arrangements

Many people negotiate through a debt support representative.

Option 4: Credit Rebuilding Programs

These programs help regain control of financial habits while improving credit over time.

When Stopping Payments May Be Necessary

In some situations, pausing payments temporarily may be unavoidable due to:

• Loss of income

• Medical issues

• Emergency expenses

• Sudden life changes

If this happens, contacting your creditors early can often result in temporary relief options.