What Happens When a Creditor Sues You in Ontario? From Lawsuit to Wage Garnishment
JASON CAMPBELL
July 6, 2026
Introduction
Few things are more frightening than opening your mailbox and finding court papers from a creditor.
Many people assume that being sued automatically means they will lose their house, have their wages seized immediately, or be forced into bankruptcy. Fortunately, that's not how the process works.
Understanding the steps creditors must take can help you make informed decisions and protect yourself before the situation becomes more serious.
In this guide, we'll explain how the legal collection process works in Ontario, what happens after a lawsuit is filed, and the options available to stop collection actions.
Step 1: Collection Calls and Demand Letters
Most creditors don't begin with a lawsuit.
Before taking legal action, creditors typically attempt to collect through:
Internal collections departments
Collection agencies
Demand letters
Settlement offers
At this stage, many consumers are still able to negotiate payment arrangements.
Step 2: Receiving a Statement of Claim
If collection efforts fail, a creditor may start a lawsuit.
You may be served with a document called a:
Statement of Claim
This document sets out:
Who is suing you
How much money is owed
Why the creditor believes the debt is valid
What remedy is being requested
Many people make the mistake of ignoring court documents.
That can have serious consequences.
Step 3: What Happens if You Don't Respond?
If no defence is filed within the required time period, the creditor can seek:
Default Judgment
A default judgment means:
The court accepts the creditor's claim
The debt becomes a court judgment
Collection tools become available
The creditor no longer needs to prove the debt. They already have a judgment.
Step 4: Judgment Enforcement
Once judgment is obtained, a creditor may attempt to collect through several legal remedies.
Wage Garnishment
One of the most common enforcement tools.
A garnishment order may require your employer to forward a portion of your wages directly to the creditor.
For many people, this is the first time employers become aware of financial difficulties.
Bank Account Garnishment
Creditors may also seek to seize funds held in bank accounts.
This can occur without prior warning once the required legal steps have been completed.
Funds frozen unexpectedly can create immediate financial hardship.
Writs Against Property
If a debtor owns real estate, a creditor may register a writ against the property.
This can create complications when:
Selling a home
Refinancing
Accessing equity
Step 5: Can You Stop a Lawsuit?
In many cases, yes.
Several options may be available depending on the circumstances.
Option 1: Negotiate a Settlement
Some creditors are willing to accept:
Lump-sum settlements
Reduced balances
Structured repayment plans
Option 2: Consumer Proposal
A consumer proposal is a legal debt settlement administered by a Licensed Insolvency Trustee.
Benefits include:
✅ Stops collection calls
✅ Stops legal proceedings
✅ Stops wage garnishments
✅ Allows repayment of only a portion of unsecured debt
✅ Lets you keep your assets
Option 3: Bankruptcy
For individuals with limited ability to repay debt, bankruptcy may provide a fresh financial start.
Bankruptcy generally:
Stops legal actions
Stops wage garnishments
Eliminates most unsecured debt
A Licensed Insolvency Trustee can determine whether bankruptcy or a consumer proposal is the better option.
Real Example
Imagine:
$38,000 in credit card debt
Missed payments
Collection agency involvement
Lawsuit filed
Judgment obtained
Wage garnishment begins
At this point many people believe it's too late.
In reality, a consumer proposal can often stop the garnishment and provide a structured resolution to the debt.
The earlier action is taken, the more options are usually available.
Warning Signs You Should Seek Professional Advice
Consider speaking with a Licensed Insolvency Trustee if:
You're receiving collection calls daily
You've received a Statement of Claim
A creditor has obtained judgment
Your wages are being garnished
You are borrowing to make minimum payments
Tax debt continues to grow
Frequently Asked Questions
Can a creditor garnish my wages without suing me?
Generally, most unsecured creditors must first obtain judgment before garnishing wages.
Can I be sued for old debt?
Possibly. Limitation periods and legal rights depend on the specific circumstances.
Can a consumer proposal stop a garnishment already in place?
In many cases, yes.
Will bankruptcy stop a lawsuit?
Generally, insolvency proceedings create a stay of proceedings that stops most collection actions.
Should I ignore a Statement of Claim?
No. Ignoring court documents can lead to default judgment.
Facing a Lawsuit or Wage Garnishment?
If you've been contacted by a collection agency, served with a Statement of Claim, or are already experiencing wage garnishment, you may have more options than you think.
A Licensed Insolvency Trustee can explain your rights and help you determine whether a consumer proposal or bankruptcy could provide relief.