Having your debt turned over to a collection agency is something no Canadian wants to deal with, but if you have fallen behind on your payments, this is not an unheard-of scenario.
Debt collection agencies are companies that specialize in recovering unpaid debts, and they may contact you to try to collect on overdue or defaulted accounts. Being chased by debt collectors can quickly turn into a nightmare, which is why many Canadians wonder how long collections agents can try to collect.
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How long can a creditor pursue a debt in Canada?
The straight answer is that a collection agency can try to collect on a debt forever, but they only have a short window to pursue you legally to recover any money. Specifically, a limitation period sets a time limit during which a creditor can commence legal action by filing a claim with the court to collect on a debt.
Canada’s base limitation period is six years; however, many provinces have lowered that time limit to 2 years.
Is it legal for a debt collector to pursue a 20-year-old debt? Unfortunately, the answer is yes. A collection agency or creditor can try to collect an outstanding debt in perpetuity; however, through provincial statutes of limitation, you have a defense against any legal action once the limitation period has expired.
This means that even though a collection agency can continue to call and try to collect the debt, any legal action they might suggest after the time limit is up is an empty threat. Moreover, you have the right to file a complaint with the consumer protection office if you feel that the debt collectors are harassing you.
What is the statute of limitations in Canada?
The statutes of limitations for collection actions bars a creditor, or collection agency, from suing you after a specific time limit. After this time’s expiration, it is much harder—and often impossible—for a creditor to collect money from a debtor for an unpaid debt.
Canadian law starts with a limitation period of six years. However, each province and territory in Canada has its own statute of limitations. Each provincial limitation period as of January 2020 is as follows:
- Alberta: 2 years
- British Columbia: 2 years
- Manitoba: 6 years
- New Brunswick: 2 years
- Newfoundland and Labrador: 2 years
- Northwest Territories: 6 years
- Nova Scotia: 6 years
- Nunavut: 6 years
- Ontario: 2 years
- P.E.I.: 6 years
- Quebec: 3 years
- Saskatchewan: 2 years
- Yukon: 6 years
Limitation periods typically apply to unsecured debts. An old credit card debt, cell phone bill or gym membership account, for example, is subject to the limitation period. However, you cannot use provincial limitation laws to avoid a court judgment for:
- secured debt
- government debt, including student loans and tax debts
- non-dischargeable debts such as child and spousal support, fines and obligations arising out of fraud.
Provincial limitations laws do not apply to the Canada Revenue Agency. Generally, CRA collections has ten years to commence legal action for most tax debts and government student debt.
Can a collection agency re-age debt?
It’s essential to understand that the limitation period begins at the date of your last payment. It is possible to reset this starting point if the time limit has not yet expired. The limitation period starts over if you:
- Make a payment, even a partial payment
- Acknowledge, in writing, that you owe the debt.
Once a limitation period has expired, the starting point cannot be reset.
Debt collectors are very aware of this reset mechanism, which is why they will attempt to encourage you to make a small token payment as a ‘gesture of goodwill’ or send in a letter or email explaining your situation and asking for more time. Doing either of these can re-age the debt. Re-ageing a debt starts the limitation period for an old debt all over again, giving them more time to pursue legal action.
When an account is referred to a collection agency, the debt collector takes over the entire process of retrieving the outstanding money. When they do, they are in the same position as the original creditor in terms of how much they can collect and how. So, if your debt is new, your debt collector can still sue you. If it is an old debt and past the limitation period, they cannot successfully pursue any legal action but can, of course, continue to call.
Before you do anything in response to a demand for payment, look at your records to determine your last payment date. If you don’t know, pull a free copy of your credit report. See if that account is listed in your report’s accounts section and look at what the last payment date reported is.
Another way debt collectors attempt to re-age a debt is to report an old debt as in collection to the credit bureau. Collection accounts remain on your credit report for seven years. If a debt collector can get a 10-year-old debt back on your credit report, they know this may prompt you to pay or settle to have it removed. However, they cannot, by law, provide misleading information to a credit bureau. If this happens, contact the credit bureau and use the error dispute mechanism to remove the item. You can also report the collection agency for unfair or illegal practices.
What if your creditor wrote off the debt?
Accounts are generally referred to collection when a debtor stops making payments, and the creditor believes that there is a likelihood that the payments won’t be resuming anytime soon. This generally happens when your account is 90 days delinquent or longer, depending on your original creditor’s internal policies. After many years, they may also decide to sell your account outright to a debt buyer for pennies on the dollar.
When they send or sell an account to a collection agency, your creditor might decide to write-off or erase the debt from their books as non-collectible. Creditors often do this for tax reasons.
However, the debt does not go away just because the creditor wrote-off your debt in their records. A debt collector can still collect on a charged off debt.
What happens after the limitation period expires?
Even though you owe the money until the debt is paid or settled, a debt collector’s options are limited when the limitation period expires. At this point, calling and sending collection letters that demand payment before further action is taken are mostly just threats.
However, after the limitations period:
- Debt collectors can continue to call and ask for payment
- The debt will remain on your credit report for seven years from the date of last payment
If a debt collector does try to sue you after the limitation period, you can defend the action by notifying the court that the limitation period has expired. Failure to show up in court and plead this defense can result in a judgment favouring the collection agency.
Whether you choose to pay an old debt is up to you. It will fall off your credit after seven years, but collection agencies can still call. If you want to stop the calls, you can offer to settle. Only make this offer if that is what you intend to do. Otherwise, ignore the calls.
Whether the limitation period has passed or not, you have rights when dealing with a debt collector. Debt collectors can only contact your friends, relatives, neighbours, or employer to get your telephone number or address, but they aren’t allowed to suggest to them that you should pay your debts. They can’t use threatening or intimidating language and apply unreasonable pressure to force you to repay the debt.
If a debt collector has not respected your rights, you can file a complaint with the Financial Consumer Agency of Canada or provincial consumer affairs office.
How long does a collection impact your credit report?
There are two time periods to consider if you have an account sent to a collection agency:
- The statute of limitations which bars lawsuits or legal actions
- The length of time collection accounts will remain on your credit report.
A collections account will remain on your credit report for seven years, whether paid or not. Depending on the credit bureau, the debt will remain on record either from the date of your last payment or from the date you missed your payment due date. Having accounts in collection will lower your credit score and affect your ability to get a loan.
If your debt is older than that, likely, it will no longer appear on your credit report.
Making a payment, or partial payments, to a debt collector resets this clock as well.
So what do you do if the debt is too old under limitations law but is still on your credit report? You need to decide how this will impact your finances. Collection accounts will hurt your credit score and may limit access to a loan at reasonable rates. If you are not planning on borrowing any time soon, this may not matter. You can wait out the seven years for the debt to be removed from your credit report.
If you agree on a settlement, you can ask the collection agency to make a goodwill deletion. Get this in writing as part of your payment and release agreement.
Will a debt collection agency sue you to recover the debt?
We now know that if your debt is too old because it’s past the limitations period, a debt collector no longer has the legal right to sue even though they can continue to call.
But if the limitation period has not expired, will they sue?
Suing debtors costs money for lawyers and court fees. It also involves a lot of time and paperwork. A debt collector will have to consider the chances of succeeding in court and how much money they expect to recover against these costs. In most cases, if your debts are small, or if you have no income to garnishee or assets to seize, a debt collector won’t pursue legal action.
And remember, if a creditor sues you after the limitation period has passed, you have the right to file a statement of defense and argue that the debt is time-barred.
Can you get out of collections without paying?
Many Canadians believe that unpaid debt disappears at some point if you ignore it long enough, but the reality is that debt doesn’t stop existing unless you repay it. If you have unpaid debt, you will continue to owe money for the rest of your life.
This doesn’t mean, however, that you can’t get out of collections without paying. It’s a matter of understanding your financial needs and tolerance levels.
- If the statute of limitations on an unsecured debt has passed, creditors won’t have any legal means to seize your wages or go after your assets in court. If you can ignore the phone calls, you can choose not to pay.
- If the account is still on your credit report, it will hurt your credit score, but the impact lessens over time. If you don’t need access to new credit right away, you can avoid the debt collector. Remember, though, making a partial payment can worsen your score as the activity will be more current.
If you decide to make a payment arrangement with the collection agency, only offer what you can afford. Get any payment plan in writing, including a release of any unpaid amount. As mentioned, you can also ask that they remove an account from collection early.
If you are receiving calls on multiple debts you can’t afford to pay and want to consider some debt relief options, call us today.
It’s often a good idea to talk with a Licensed Insolvency Trustee before you start negotiating debt settlements. One of the disadvantages of settling your own debt is that you may not be able to get all creditors to accept a reasonable offer. Debt collectors do not have to accept any payment proposal. It may not be a good idea to pay off some creditors, only to struggle with some remaining debt. In many instances, a Licensed Insolvency Trustee can get all creditors into an affordable repayment plan through a consumer proposal. And of course, a consumer proposal also deals with debts like student loans and tax debts.