Is There a Statute of Limitations on How Long a Collection Agency Can Attempt to Collect a Debt?
For Canadians grappling with debt, the question often arises: How long can a collection agency collect on a debt in Canada? The answer to this question is multifaceted, contingent on several factors, and requires a comprehensive understanding of the debt collection process, statutes of limitations, and credit impact.
The Duration of Debt Collection Efforts
In the simplest terms, a collection agency in Canada can attempt to collect a debt indefinitely. However, the critical distinction lies between the agency’s ability to pursue the debt and its ability to legally enforce the debt. This is where the concept of the “limitation period” comes into play.
Limitation Periods: The Legal Window for Debt Recovery
The limitation period refers to a specified time interval during which a creditor or collection agency can initiate legal proceedings to recover debt. The onset of this period is typically marked by the last payment date or the date of acknowledgment of debt.
Canada’s base limitation period is six years, but it varies across provinces. For instance, Alberta and British Columbia have a limitation period of 2 years, whereas Nova Scotia and Nunavut have a period of 6 years. When this period expires, any legal action that the collection agency threatens is essentially hollow.
The Perpetual Pursuit of Debt: A Legal Perspective
Even with the expiration of the limitation period, a collection agency retains the right to contact you for debt recovery. However, any legal action they suggest is unenforceable. If you feel harassed, you can file a complaint with the consumer protection office.
Understanding the Statute of Limitations in Canada
The statute of limitations is a legal mechanism that restricts the time within which a creditor or collection agency can sue a debtor for an unpaid debt. It varies across provinces and territories in Canada, and typically applies to unsecured debts like credit card debt, cell phone bills, or gym membership fees.
Provincial Variations in Limitation Periods
Here’s a quick rundown of the limitation periods in various provinces:
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
Exceptions to Provincial Limitation Laws
There are, however, certain types of debt that are immune to provincial limitation laws. These include secured debt, government debt (including student loans and tax debts), and non-dischargeable debts like child and spousal support, fines, and obligations stemming from fraudulent activities. For most tax debts and government student debt, the Canada Revenue Agency has a limitation period of 10 years.
The Concept of Debt Re-aging
The limitation period for debt collection gets reset under specific conditions. If you make a payment (even a partial one) or acknowledge the debt in writing within the limitation period, the clock resets. This is known as debt re-aging, and debt collectors often employ this strategy to extend their window for legal action.
The Role of Credit Reports in Debt Re-ageing
Usually, the collection agency will report an old debt as in collection to the credit bureau, as collection accounts stay on your credit report for seven years. If you come across such a situation, you can contact the credit bureau and dispute the error. You also have the right to report the collection agency for unfair or illegal practices.
The Implications of Debt Write-off
Often, creditors may write-off or erase the debt from their books as non-collectible, typically for tax purposes. However, this does not eliminate the debt. A collection agency can still pursue the written-off debt.
Post-Limitation Period: What Happens Next?
Once the limitation period expires, a collection agency can continue contacting you for payment. However, any legal threats they make are unenforceable. The debt remains on your credit report for seven years from the date of the last payment.
Legal Defense Against Post-Limitation Period Lawsuits
Should a collection agency attempt to sue you after the limitation period, you can defend yourself by notifying the court of the expired limitation period. Failure to do so may result in a judgment in favor of the collection agency.
The Impact of Collection on Your Credit Report
A collection account remains on your credit report for seven years, regardless of whether it’s been paid or not. This can lower your credit score and hinder your ability to get a loan. If the debt is older than seven years, it will likely no longer appear on your credit report.
Resetting the Credit Report Clock
Making a payment or partial payments to a debt collector also resets the credit report clock. So, if the debt is too old under limitation law but still on your credit report, you need to weigh its impact on your financial situation.
Can a Collection Agency Sue You?
While a collection agency can sue you within the limitation period, it’s a decision they make based on the size of the debt, the likelihood of winning the case, and the potential recovery amount. For smaller debts or if you have no income or assets, they’re less likely to sue.
Legal Rights Against Post-Limitation Period Lawsuits
If a creditor sues you after the limitation period has passed, you can file a statement of defense and argue that the debt is time-barred.
Is It Possible to Exit Collections Without Paying?
While unpaid debt doesn’t cease to exist unless repaid, it’s possible to navigate out of collections without paying. This largely depends on your financial needs and tolerance levels.
Criteria for Not Paying
If the statute of limitations on an unsecured debt has passed, creditors lack legal means to seize your wages or assets in court. If you can tolerate the phone calls, you can opt not to pay.
If the account still appears on your credit report, it will negatively impact your credit score. However, the influence lessens over time. If you don’t need access to new credit immediately, you can bypass the debt collector. However, making a partial payment can worsen your score as the activity will be recent.
Entering into Payment Arrangements
If you decide to make a payment arrangement with the collection agency, ensure you only offer what you can afford and get the payment plan in writing. You can also ask them to remove the account from collection early.
Final Thoughts
Navigating debt collection can be a complex process. If you’re dealing with multiple debts you can’t afford to pay, consider exploring debt relief options. It’s beneficial to consult a Licensed Insolvency Trustee before negotiating debt settlements. They can help you draw up an affordable repayment plan through a consumer proposal, which also deals with debts like student loans and tax debts.
Remember, the question, “How long can a collection agency collect on a debt in Canada?” has a vast answer spectrum and varies based on your specific situation. Take time to understand your financial position, evaluate your options, and make informed decisions.
