In Canada, there are some rules that determine how long you can be chased for unsecured debts that you owe before they become unrecoverable. This is known as the statute of limitations.
But despite these clearly-defined boundaries, there is still a great deal of confusion around how long creditors can recover the money they are owed and, more importantly, whether debts can still be recovered after this time period has passed.
In this article, we’ll outline what a statute of limitations is, how a statute of limitations works, what the statute of limitations is on debt in Canada and whether you can still be chased for a debt after the statute of limitations has passed.
What is a statute of limitations?
A statute of limitations is a law that determines how long a creditor can chase you and pursue legal action over an unpaid debt.
It is a term perhaps more commonly associated with personal injury cases or personal injury claims and usually describes the length of time an injured person has to file a claim arising from an accident, injury or sexual assault but it can also be applied to the debt collection process.
It refers to a specific period of time and is designed to protect you (the consumer) from harassment from debt collectors or money that you may have borrowed years ago and since forgotten about.
For example, if the statute of limitations on a debt has passed, it becomes time-barred and a creditor or debt collector can no longer legally chase you for money owed or take legal action against you to force you to repay the debt.
This doesn’t mean the debt has disappeared and you technically still owe the money but you will no longer be required to pay it.
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How does a statute of limitations work?
It may sound complicated but a statute of limitations is generally simple to understand.
Put simply, a statute of limitations starts from the last date you either made a payment towards the debt – however small – or acknowledged the debt in writing or verbally (whichever happened last).
If you don’t make a payment or acknowledge the debt and a creditor doesn’t take legal action before the statute of limitations runs out, it will automatically become unrecoverable after a certain number of years and you will no longer be required to repay the money owed.
However, if you make a payment towards the debt or admit you owe the debt, this will reset the clock and the statute of limitations will start all over again.
When this happens, the debt becomes “re-aged”. During this time, creditors can also take legal action or obtain a court judgment which gives them power to issue a wage garnishment against you or, in some cases, even put a lien against your home.
What is the statute of limitation on debt in Canada?
Under the Limitations Act (2002), the Basic Limitation Period and Ultimate Limitation Period for unsecured debts varies between two and six years depending on where you live. The Limitation Act also provides legal guidance on how much time you have to file a personal injury claim in Canada, alongside the Occupiers Liability Amendment Act (2020).
Here is a guide to limitation periods on debt in each province in Canada:
- Ontario – two years
- Alberta – two years
- British Columbia – two years
- Newfoundland and Labrador – two years
- Saskatchewan – two years
- Quebec – three years
- Manitoba – six years
- New Brunswick – six years
- Nova Scotia – six years
- Northwest Territories – six years
- Nunavut – six years
- Prince Edward Island – six years
- Yukon – six years
This means that, in Manitoba, a creditor has six years to pursue legal action over an unpaid debt as long as no payments are made or the debt isn’t acknowledged during this time whilst, in Ontario, a creditor only has two years to take action for such a claim.
However, whilst most unsecured debts generally become unrecoverable after six years have passed, there are gray areas and loopholes when it comes to how long creditors can chase you for the money they are owed and the limitation period established is not necessarily always the case.
It is also worth remembering that even if the statute of limitations has passed, evidence of the debt will remain on your credit report for seven years whether it has been repaid or not.
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What are the exceptions to the statute of limitations on debt in Canada?
Because the statute of limitations only applies to unsecured debts, there are some debts that are not governed by the same provincial rules and, essentially, can be chased for longer than six years or even indefinitely. This includes government debts, tax debts and student loans.
Under the Income Tax Act, the Canada Revenue Agency (CRA) can collect tax debts for a period of ten years before they become unrecoverable and no action has been taken during this time to recover the money. This could range from sending a letter demanding payment to taking court action.
Can I still be chased for debt after the statute of limitation has passed?
Whilst creditors are, legally, unable to force you to repay the debt after the statute of limitation has passed, there are some instances where you may still receive letters or phone calls.
This is why you must be confident the statute of limitations has passed because, if you respond to letters or phone calls before the limitation period has expired, you will acknowledge the debt exists and risk Summary Judgment or further legal action by the court.
If you are certain you no longer owe money and a debt collector tries to sue you, you must use proof of the expired limitation period to file what is known as a Statement of Defence.
You may also be required to provide written notice or appear in court. This will inform the court that the debt being chased is too old to be collected and cease further collection efforts before it escalates.
However, suing a debtor is a timely and costly process and it is extremely rare that a creditor will go to such extremes to force you to repay the money they are owed.
The chances of this happening are lessened even further if your debt is relatively small or if you have few assets to seize.