If you have debt, you might wonder if it ever expires or simply disappears after a certain period of time. In Canada, the statute of limitations for debt plays a key role in determining how long creditors can legally pursue you for unpaid debts.
This statute sets a time limit for creditors to take legal action to collect what’s owed. While the term “statute of limitations” is often associated with criminal cases, it also applies to the debt collection process.
So, does this mean debt in Canada can expire? Will ignoring it make it go away? Not quite. Read on to understand how the statute of limitations for debt in Canada works and what it means for you.
Understanding the Statute of Limitations for Debt in Canada
What is the statute of limitations in Canada? The statute of limitations for debt in Canada sets the time limit during which creditors or collection agencies can take legal action to recover unpaid debts. This time frame depends on several factors, including:
- Your Province or Territory: The limitation period varies across Canada, typically ranging from two to six years.
- Type of Debt: Not all debts fall under the statute of limitations.
- Acknowledgment of Debt: If you acknowledge the debt by making a payment or confirming it in writing, the limitation period resets.
Does the Statute of Limitations Apply to All Types of Debt?
The statute of limitations primarily applies to unsecured debt, such as personal loans or credit card debt. However, certain debts follow different rules depending on the type and your location:
- Student Loans: Federal student loans, such as Canada Student Loans or Canada Apprentice Loans, have a six-year limitation period starting the day after the loan becomes effective.
- Employment Insurance (EI): Overpayments from EI are also subject to a six-year limitation period beginning on the date of the overpayment.
- Tax Debt: The Canada Revenue Agency (CRA) can collect tax debts for six or ten years, depending on the circumstances. Acknowledging tax debt through a payment or written proposal can reset the limitation period.
The statute of limitations does not apply to secured debts like mortgages. Lenders can use different methods, such as foreclosing on a property, to recover funds owed on secured debts like mortgage insolvency in Toronto.
Understanding the statute of limitations for debt in Canada can help you make informed financial decisions and know your rights as a borrower. If you’re struggling with overwhelming debt, credit counselling services in Toronto can help you find practical solutions.
How Does the Statute of Limitations on Debt Work?
Collection agencies often use the threat of a lawsuit to escalate your stress about unpaid debt. But what does it actually mean when they warn of legal action? Can you go to jail or be arrested for not paying debt in Canada?
The answer is “no.” You cannot be jailed for unpaid debt in Canada. However, collection agencies can file a lawsuit to recover the debt, but only within the timeframe established by the statute of limitations on debt in Canada. This statute protects consumers from unexpected legal claims over old debts.
If you haven’t made a payment or acknowledged the debt within the time limit defined by your province’s statute of limitations, creditors lose their legal ability to sue you for that debt. This timeframe varies by province and is currently capped at six years as of June 2024, but laws can change.
To get the most accurate and up-to-date information about the statute of limitations on debt in Canada, consider consulting a Licensed Insolvency Trustee who can guide you based on your specific situation and location. If your debt situation is more complex, filing a corporate proposal might be a solution to help you deal with overwhelming business debt.
Statute of Limitations by Province and Territory
Below is a table outlining the statute of limitations for debt across each province and territory in Canada.
| Province | Statute of Limitations |
| Alberta | 2 years |
| British Columbia | 2 years |
| Saskatchewan | 2 years |
| Manitoba | 6 years |
| Ontario | 2 years |
| Quebec | 3 years |
| New Brunswick | 2 years |
| Nova Scotia | 2 years |
| Northwest Territories | 6 years |
| Prince Edward Island | 6 years |
| Nunavut | 6 years |
| Yukon Territories | 6 years |
How Soon Can Your Debt Be Sent To Collections?
It depends on the creditor you owe money to. Some may send your debt to collections after just six months, while others may wait longer. Since it’s difficult to predict exactly when your debt will be handed over to a collection agency, the best approach is to pay off the debt as quickly as possible.
What Can Creditors Do Before the Statute of Limitations?
Before the statute of limitations expires, creditors or collection agencies can contact you in an attempt to recover the debt. They can also take legal action by suing you in court.
For example, if you fail to pay your utility bills (such as water or gas), the utility company or a collection agency can sue you. If they win the lawsuit, they may take further steps to collect the debt, including garnishing your wages or seizing your property.
If you are considering filing for bankruptcy, Chapter 7 bankruptcy or Chapter 11 bankruptcy might be solutions worth exploring. What Can Creditors Do After the Statute of Limitations?
Once the statute of limitations has passed, creditors can no longer take legal action against you. However, collection agencies can still contact you to request payment. Even if they threaten legal action, they are legally prohibited from pursuing it once the limitation period has expired.
What Happens if You Don’t Pay Collections?
If your debt has been transferred from the original creditor to a collection agency, it usually means you’ve fallen behind on payments. The collection agency will typically reach out to you by phone or in writing, informing you that they are now responsible for recovering the debt.
The agency may offer you the option to repay the debt in installments that fit your budget, allowing you to settle the debt on their terms.
But what if you can’t afford their offer? People often fall into debt due to circumstances beyond their control, such as job loss or divorce, making it difficult to reach an affordable repayment agreement.
Increased Pressure
If you’re unable to pay, the collection agency will likely increase pressure on you. Expect frequent phone calls, emails, and letters urging you to pay. However, there are rules on how often and when collections can contact you.
Collection agencies are allowed to contact you up to three times a week unless you consent to more frequent contact. They can call you between 7 a.m. and 9 p.m. Monday through Saturday and between 1 p.m. and 5 p.m. on Sundays. They are prohibited from calling on statutory holidays.
Ignoring the phone calls won’t stop the collection agency. A missed call doesn’t count as a contact. A debt collector must either speak with you, leave a voicemail, or send an email for it to be considered official “contact.” If you don’t answer, they may use automated systems to repeatedly call you.
Once you’ve been officially contacted, they cannot reach out again for the rest of the day.
Credit Score Impact
Having your debt sent to collections will likely harm your credit score. Failing to pay the debt after it has been transferred to a collection agency will further lower your credit score.
The threat of Legal Action and Wage Garnishment
Collection agencies often use the threat of legal action to pressure you into paying. They may claim they will obtain a court order to garnish your wages. Wage garnishment is a possible outcome if you don’t reach an agreement with the agency or seek protection from a Licensed Insolvency Trustee.
Licensed Insolvency Trustees can help by offering debt relief options like filing a consumer proposal in Toronto or bankruptcy, which can stop debt collection agencies from contacting you. What assets you can keep in a consumer proposal and the key benefits of a consumer proposal can be important considerations.
It’s also important to note that the statute of limitations for debt in Canada limits how long creditors can take legal action. After the limitation period expires, they cannot pursue legal remedies like wage garnishment, providing you with some protection.
What Happens if You’re Taken to Court for Debt?
If you stop making payments to a creditor or collection agency, they have the option to sue you for the amount you owe. The court will consider factors such as the size and age of your debt, your income, and the assets you own. If the court issues a money judgment against you, the creditor can pursue various methods to collect the debt, including:
- Setting up a payment plan
- Offering a partial settlement where you pay a portion of the debt
- Garnishing your wages
- Garnishing funds from your bank account
- Placing a lien (legal claim) on your home
A Licensed Insolvency Trustee can help you explore your debt relief options and negotiate with your creditors. Understanding how the statute of limitations for debt in Canada works can also protect you from legal action after the limitation period has passed.
Conclusion
Understanding the statute of limitations for debt in Canada is crucial for anyone dealing with unpaid debt. This law determines how long creditors or collection agencies can legally pursue you for outstanding payments. While the statute of limitations can offer some protection by limiting legal action once the time period has passed, it’s important to remember that the debt doesn’t disappear after the limitation period ends. Creditors may still contact you, and debt collection agencies can increase pressure through regular communication.
Moreover, knowing how this statute works in your province can help you avoid unexpected legal claims and better manage your finances. If you’re struggling with debt, it’s always wise to consult with a Licensed Insolvency Trustee who can guide you through the debt relief options available, such as a personal bankruptcy service in Toronto. With the right knowledge and support, you can make informed decisions and protect your financial future.
FAQs
Even if the statute of limitations has passed, a creditor or collection agency may still try to sue you. If this happens, you should file a statement of defence with the court and attend your trial date to ensure the court is aware that the statute of limitations has expired.
Yes, the statute of limitations for tax debt is different from that of unsecured debts like personal loans or credit card debt. Canadian tax debt owed to the CRA has a limitation period of either six or ten years, depending on the type of tax. Other government debts, such as student loans, are subject to the federal limitation period of six years.
Debt collectors can pursue repayment until the debt is settled, but they can’t take you to court after the statute of limitations expires. They may stop pursuing old or small debts, especially if you have no means to repay them. Remember, they can only contact you once per day and cannot use threats or harassment.
Yes, creditors can still contact you to collect a debt after the statute of limitations expires. However, any threats of legal action are invalid once the limitations period has passed.
The statute of limitations begins when the debt is incurred, typically after you stop making payments. If you acknowledge the debt by making a payment or agreeing to pay, the timeline restarts.