Ontario Limitations Act and Old Debts
The government of Ontario brought into force the Limitations Act, 2002, on 1st of January 2004.
The Act has made significant changes with respect to limitation periods applicable in Ontario and differs dramatically from the previous legislation (Limitations Act, R.S.O. 1990).
Limitation period establishes deadlines regarding the time frame within which the claimant or creditor needs to give notice or start proceedings of the claim.
For the defendants, limitations periods offer certainty that after the lapsing of the limitation period, they can carry on with their normal routine without the concern of an ongoing lawsuit.
If the deadlines are missed, it brings closure by default to such claims.
Need Help Reviewing Your Financial Situation?
Contact a Licensed Trustee for a Free Debt Relief Evaluation
Payment default on your debt
If you have a credit card or other debt and fail to make payments towards it, the consequences are two-fold.
Creditors often will obtain a wage garnishment order in case you failed to make any payments towards your debts.
The garnishment order means your employer must send 50 percent of your salary to your creditors towards the unpaid debts.
The order can also be sought on the bank account
The other action the creditor takes is to make collection calls.
Not ignoring the collection call and being professional while talking to the creditor can help avoid wage garnishment.
What does the Act mean for your old debt?
According to Ontario Limitations Act Section 4:
“Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.”
The definition of ‘claim” in the Act is “a claim to remedy an injury, loss or damage that occurred as a result of an act or omission.”
The Ontario Limitations Act is applicable to all claims that are initiated in the court.
An “old” debt is one where you have not made any payments for a debt that has not had any activity for more than two years.
If a creditor files a lawsuit you could respond with a Statement of Defense stating your debt is beyond the limitations period as set by the Act.
The creditor could still succeed in getting a judgement against you if you do not defend yourself as the court is not aware of the time frame of your debt.
According to the previous legislation an “old” debt is one that has six years validity from the last activity date.
If you do not make any payments for six years on a debt, it will be purged from your Equifax credit report.
The creditor also has six years to file a claim against you in case of payment default.
Two-year limitation period
What this means for your old bank or credit card debt is that you may not need to file bankruptcy to handle the debt.
Statute of limitations apply to debts with both provincial and federal legislation limiting how long the old debt can be collected by a creditor.
The Ontario Limitations Act specifies this time frame.
To simplify, the creditor, according to the Act, has to file a claim or commence legal action within two years against you.
This two year timeframe is interpreted generally to mean two years from the exact date you stopped payments towards the debt.
The Act is applicable to the payment defaults made after it came into force (January 1, 2004).
If you defaulted prior to this date, the creditor can make a claim within six years.
It is also important to know that:
The limitation period begins afresh if you make a partial payment as a debtor towards that debt.
Even if the creditor cannot file a claim, your debt does not disappear and can still reflect on your credit score report.
Despite the creditor not being able to collect, the poor credit score can hamper your ability to obtain other loans or borrow more money.
Even if the creditor cannot take legal action against you, the collection calls may not stop.
Creditors often resell old debts and agencies will keep making collection calls to try to collect any amount, however small, from you towards the debt.
The two year limitation time frame does not apply to certain debts including child support debts, parking tickets, government provided student loans (subject to certain rules), and large tax debts of more than $250,000 and are 75 percent of total debts.
Will old debts disappear?
If you have a debt that is more than two years old and you have not made any payments towards it, you can still face collection calls from the agency to try to extract as much as possible from you.
Despite the fact that your debt is more than two years old, it will not disappear and you still owe the same.
The Limitations Act does offer you a way to defend yourself in the event your debt is not active for more than two years.
While you owe the debt, the creditors legally will not be able to collect the same from you through a court judgement, if you defend yourself.
In case your debt has been inactive for more than six years, it will not reflect on your credit score.
It is important for you to know that your debt, as said earlier, does not go away even if it does not reflect on your credit score.
Certain debts as mentioned above including taxes or student loans do not fall within the purview of Ontario Limitation Act.
In case of student loan, taxes or CMHC shortfall on property, the debt will not disappear until it is cleared.
The CRA takes necessary action such as taking your tax refunds until your debt is cleared. paid.
Get expert legal advice
Credit reporting legislation allows Equifax Canada to retain your credit history for a period of six years from receiving an R9 rating that indicates bad, written-off debt.
The other major credit score agency TransUnion keeps the delinquent amount for upto seven years from the default date.
While having an uncleared old debt can affect your ability to borrow again from a bank or credit card company, your old debt does not disappear despite the elapsing of two years’ time frame set by the Ontario Limitations Act.
Getting expert legal advice can help you prepare your legal paperwork and defend against a legal claim on your old debt.