Sued by Your Bank Over a Line of Credit or Overdraft in Ontario
A personal line of credit or overdraft is almost always a demand facility: the agreement lets the bank call in the whole balance whenever it chooses, and missed minimum payments are usually what trigger that call. Three things can then follow: a formal demand letter, the bank applying money in your other accounts at the same institution to the debt (set-off), and a court claim. If the line is secured on your home, the path runs through the Mortgages Act and a Notice of Sale instead. Here is how each stage works, and what to do first.
From missed payments to a court claim
Every major bank runs the same playbook. Missed minimum payments bring collections calls and letters, and the limit is frozen or cancelled. Eventually the bank issues a written demand for the full balance, often through a law firm. The file then goes one of four ways: the bank keeps collecting, hands it to a collection agency, sells it to a debt buyer, or sues. An unpaid overdraft follows the same track. Throughout, the Bank Act (s. 627.37) bars the bank from harassing you or your family, using threatening language, or publicizing your non-payment.
Claims of $50,000 or less go to Small Claims Court, where you have 20 days from service to file a defence (Rules of the Small Claims Court, r. 9.01). Larger balances go to the Superior Court of Justice, where a statement of defence is due 20 days after service in Ontario (Rules of Civil Procedure, r. 18.01). Ignoring the claim leads to a default judgment; being sued for debt in Ontario covers the paperwork.
Demand loans and the limitation clock
Ontario’s basic rule is two years from the day a claim is “discovered” (Limitations Act, 2002, s. 4). For a demand obligation, s. 5(3) says the loss occurs on “the first day on which there is a failure to perform the obligation, once a demand for the performance is made.” It applies to demand obligations created on or after January 1, 2004 (s. 5(4)). On a true demand loan, the clock starts not when you borrowed or first fell behind, but when the bank demands payment and you do not pay.
Two cautions. Most lines of credit also require minimum monthly payments, and how s. 5(3) interacts with missed instalments or an acceleration clause is a question for a lawyer. And a written, signed acknowledgment, or even a part payment, made before the period expires resets the clock (s. 13), so a “goodwill” payment in year two hands the bank two more years. If the demand, or your last payment, is more than two years old, read when a debt is too old to sue on in Ontario first.
The bank’s right of set-off, and joint lines
Once the debt is due, and after a demand the whole balance is due, the bank can generally apply money in your chequing or savings accounts at that same bank toward it. This right of set-off (banks say “right of offset”) comes from the common law, and virtually every account agreement repeats it. It needs no court order and, in practice, no warning: pay lands Friday and is gone Monday.
The right has limits. It reaches only accounts at the same institution, held by the same person in the same capacity; accounts at other banks need a judgment and a garnishment. Whether a joint account can be applied against one holder’s debt depends on the account terms and on who actually owns the funds. And the exemptions that protect part of your wages from garnishment do not clearly apply to a bank debiting its own customer’s account. Already happened? See frozen bank account in Ontario.
A joint line of credit cuts the other way: each borrower is liable for the whole balance, so the bank can demand from, set off against, and sue either of you. A separation agreement that says your ex will “take” the line binds the two of you, not the bank (joint debt after separation).
When the line is a HELOC secured on your home
A home equity line of credit is registered on title as a charge, and the Mortgages Act defines “mortgage” to include “any charge on any property for securing money or money’s worth.” Rather than a simple debt claim, the bank can exercise a power of sale. Where the charge contains one, notice cannot be given until the default has continued for at least 15 days, and no sale can occur until at least 35 days after the notice (s. 32). While that period runs, s. 42 bars the bank from suing without a judge’s leave. If the house sells for less than what is owed, the bank can sue for the shortfall, and for money secured by a mortgage the limitation period is generally ten years (Real Property Limitations Act, s. 43), not two.
The Act also gives you a lever. Under s. 22, before a sale or before an action is started, a borrower in default can pay the arrears and the lender’s necessary expenses and be “relieved from the consequences of such default.” For an unsecured line, the bank cannot touch the house until it has a judgment and a writ, explained in can a creditor take your house in Ontario.
What to do in the first week after a demand
- Identify what you are holding. Only a court claim starts the 20-day defence deadline; a Notice of Sale starts the 35-day period; a demand letter, once unpaid, starts the limitation clock.
- Move your day-to-day banking. Redirect your pay, benefits and automatic payments to an institution you do not owe money to. It is lawful, and it keeps a set-off from emptying the account you live out of.
- Do not make a token payment or sign anything yet. Either can reset the limitation period (s. 13). Get advice first.
- Pull the paper. The credit agreement, statements, the demand, your last payment date, and whether the line is registered on your home.
- Ask for the numbers in writing. The balance, the rate and how interest was calculated; for a HELOC, the statement of arrears the lender must give within 15 days (s. 22).
- Diarize the deadline and respond. If a claim has been served, file a defence or a notice of intent to defend on time.
Frequently asked questions
Can the bank demand the whole balance when I only missed two payments? Usually, yes. Most line of credit and overdraft agreements are payable on demand, and missed payments are a default that lets the bank end the facility and call in everything owing. Check your agreement’s wording.
Does the bank need a court order to take money from my account? Not for set-off against your own accounts at the same bank once the debt is due. Reaching money at a different bank, or your wages, takes a judgment and a garnishment.
Will a consumer proposal or bankruptcy stop a bank lawsuit over a line of credit? A filing through a Licensed Insolvency Trustee generally stays collection action on unsecured debt. It does not remove a HELOC lender’s security in your home.
Get the demand looked at before the clock runs
A bank demand is not a judgment, and a court claim is not a lost case, but both come with dates that do not move. Tell us what the bank has sent you and we will tell you which clock is running and what a realistic way out looks like.
Sources: Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, ss. 4, 5, 13, 15 · Mortgages Act, R.S.O. 1990, c. M.40, ss. 1, 22, 32, 42, 43 · Real Property Limitations Act, R.S.O. 1990, c. L.15, s. 43 · Bank Act, S.C. 1991, c. 46, s. 627.37 · Rules of the Small Claims Court, O. Reg. 258/98, r. 9.01 · Rules of Civil Procedure, R.R.O. 1990, Reg. 194, r. 18.01 · Debt collection: know your rights — Financial Consumer Agency of Canada · Home equity lines of credit — Financial Consumer Agency of Canada · Lines of credit — Financial Consumer Agency of Canada. General information for Ontario, not legal advice.
General information for Ontario, not legal advice. Reviewed by Angelos Spingos. Last reviewed September 21, 2026.