If you have debt, you may be wondering if it expires at some point. Or if it will ever simply disappear if it isn’t paid after a certain period of time.
A statute of limitations is a law that determines how long a creditor is allowed to pursue legal action against you for an unpaid debt. You’ve probably heard the term in relation to prosecuting criminals, but the collections process also has a statute of limitations.
Does this mean that debt can expire? If you ignore it, will it go away on its own? Not exactly. Keep reading to learn how that statute works.
A common collection agency tactic is to turn up the heat on your debt stress with the threat of a lawsuit. But what does it really mean when they try to intimidate you with legal action? Can you go to jail for not paying debt in Canada? Can you be arrested?
The answer to both is “no.” However, a collection agency can sue you in court to collect your debt within a specific timeframe, which varies from province to province. This is Canada’s statute of limitation on debt, and it protects you as a consumer from out-of-the-blue claims to money you don’t even remember borrowing. If you haven’t made a payment or acknowledged a debt for 2-6 years and have yet to pursue legal action, their time will have run out. And depending on your province, the window can be even smaller:
|Statute of Limitation Length
|Provinces & Territories
|Alberta, British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Saskatchewan
|Manitoba, Northwest Territories, Nunavut, Prince Edward Island, Yukon
If your debt has been transferred from the initial creditor to a collection agency it’s often because you have fallen behind on payments. The collection agency should reach out to you by phone or in writing informing you they are now responsible for recovering the money.
It’s possible the agency will offer you a chance to pay the money back in installments you can afford, in which case you can choose to repay the debt on their terms.
But what if you can’t afford their offer? We know people often fall into debt for reasons beyond their control, such as job loss or divorce, and sometimes it’s just not possible to come to an agreement you can afford.
The first thing that’s likely to happen is an increase in pressure from the debt collection agency. This means regular phone calls, emails and letters pressuring you to send them money. There are rules around how often and when collections can contact you though.
Collection agencies can contact you up to three times in a week, it can be more often if you provide consent for them for that. They are allowed to call you from 7 am to 9 pm Monday to Saturday, and 1 pm to 5 pm on Sunday. They aren’t allowed to call on statutory holidays.
If you think you can just ignore the phone calls, it’s not that simple. A call that you do not answer does not count as them contacting you. A debt collector must speak to you on the phone, leave a voicemail or send an email for it to officially qualify as you being “contacted.” They may use a machine to repeatedly call you if you do not answer the phone.
Once you have been officially “contacted,” they cannot contact you again for the rest of the day.
Having your debt sent to a collection agency is likely to have a negative impact on your credit score. Not making any payments on your debt after it has been sent to collections will also cause your credit score to lower.
Collections agencies will often pressure people with the threat of legal action in order to recover the debt. They may tell you they will get a court order to garnish your wages for example. Wage garnishment is a likely outcome if you do not come to an agreement with the debt collections agency or seek protection from a Licensed Insolvency Trustee.
If you stop making payments to a creditor or collection agency, they can sue you for the money you owe. The court will look at factors like the size and age of your debt, how much you make and what assets you own. If they issue a money judgement against you, your creditor can collect in the following ways:
A Licensed Insolvency Trustee can always help you explore your debt relief options and negotiate with your creditors. However, knowing how the statute of limitations on debt in Canada works may save you a lot of trouble.
Even if their opportunity for legal action has passed, a creditor or collection agency may try to sue you. In this case, file a statement of defense with the court and be sure to show up on your trial date.
Yes. And it’s an important distinction from unsecured debt like personal loans or credit card debts. Canadian tax debt owed to the CRA will have a limitation period of either six or 10 years depending on the type of tax.
Other government debts like student loans fall under the federal limitation of six years.
The limitation is measured from your last acknowledgement or payment of your debt and will reset if you:
You can still talk to debt collectors if you’re relying on the statute of limitations to run out — but be careful what you say because acknowledging the debt may restart the clock. But you can ask who’s calling, get more details on the debt they’re pursuing, and confirm their credentials without resetting the clock.
A collection agency can pursue your debt until it’s repaid, regardless of how long it’s been. But the statute keeps the agency from taking you to court after a certain amount of time.
Debt collectors are never legally required to stop, but they might if it’s an old debt too small to warrant the effort, or if they know you don’t have the income and assets to repay. If they continue to contact you, remember that you have rights. They can only speak to you once per day and they aren’t allowed to threaten, intimidate, or harass.
Let’s say you have a $7,000 credit card debt while living in Ontario. Suddenly you’re unable to pay due to emergency repairs on a flooded basement. Two years after the first missed payment, your creditor won’t be able to bring you to court, but they can still send collectors.
Maybe you took out a $30,000 loan on a car in British Columbia. You’ve made four payments, but now you’re struggling to keep up. If you keep making partial payments, the statute of limitations will never run out, but after two years of non-payment, creditors will no longer be able to sue, but they could use the car as collateral.
What if you live in Alberta with an outstanding federal student loan of $10,000? You can’t make payments because you have to cover car repairs. You might think the statute of limitations will be the provincial two years, but that isn’t the case. With a federal debt like this, you’ll need to wait the full six years.
If you’ve taken out a small personal loan of $500 in Québec and haven’t come up with the cash yet, it’s worthwhile to avoid acknowledging the debt until the province’s unique three-year statute of limitations has passed. This way you can settle it without legal action.
You may have heard that debt expires after seven years, but this is untrue. The myth comes from the fact that most negative information will leave your credit report within seven years of an incident.
In reality, a missed payment on your debt will only take six years to disappear from your credit report, but this has no effect on whether you still need to pay. Much like the statute of limitations, your creditor or debt collector can continue to contact you because, legally, you still owe that money.
An outstanding debt can be written off by a creditor to balance their books, and while this could lower the debt’s priority to them, they can still pursue it or pass it off to a collection agency.
The best way to permanently eliminate a debt is by paying it off.
If you are struggling with unpaid debts, the best course of action is to get trustworthy advice from a debt professional, like a Licensed Insolvency Trustee (LIT). Speaking with an LIT will not reactivate any old debts and will help you gain a clearer understanding of your financial obligations.