Can you be sued for an outstanding debt if you have not made any payments or received any communication from the creditor? The answer is yes, but it depends on whether time has run out.

A statute of limitations on debt collection limits how long a creditor or collection agency can take legal action against you for unpaid debt.

Keep reading to find out how long a creditor has to initiate legal action and how debt collectors can extend this time limit.

What is the statute of limitations on debt in Canada?

The statute of limitations on debt in Canada refers to the amount of time a creditor can take legal action to collect. The timeframe varies by province, but the statute of limitations for most unsecured debts is 2 to 6 years.

The debt statute of limitations period in Canada is 2-6 years.

If a debt is not collected within the time limit, creditors and collection agencies cannot take legal action; the debt is no longer legally enforceable.

In the simplest of terms, if you haven’t made payments towards your debt or acknowledged the debt—in writing or verbally—and the limitation period has passed, a creditor can no longer pursue legal action.

However, if the time limit hasn’t passed, creditors and collection agencies can take legal action and obtain a court judgment, which allows them to garnish your wages or bank account or put a lien against your home.

Creditors can ask the court to serve a wage garnishment order on your employer or bank.

The limitation period begins when you last acknowledged the debt or last made a payment. Making a partial payment or admitting that you owe the debt will reset the clock, and the time starts again.

The clock restarts if you make a payment or acknowledge the debt in writing.

If you don’t inform the creditor of a change of address or telephone number, this can also increase the statute period.

Canada debt statute of limitations by province or territory

The federal statute of limitations on debt collection in Canada is six years, but provinces and territories have their own limits varying from two to six years.

The Statute of Limitations on Debt in Canada

Here’s the statute of limitations period for each Canadian province and territory:

Statute of limitations Provinces and territories
2 years Alberta, British Columbia, Newfoundland and Labrador, Ontario, Saskatchewan
3 years Quebec
6 years Manitoba, New Brunswick, Nova Scotia, Northwest Territories, Nunavut, Prince Edward Island, Yukon

What happens if the statute of limitations has passed?

If the statute of limitations has expired, debt collectors can no longer take you to court to collect the debt.

When legal action is no longer possible, they may stop pursuing you, especially if you have no income or assets. But you still owe the money, so they can still call and send text messages, letters and emails.

What if a creditor tries to sue you after the statute of limitations?

If a collection agency tries to sue you for an old debt, you can use the expired limitation period to file a Statement of Defence. This will notify the court that the debt is too old to collect. It is crucial to respond to this action.

The consequences of ignoring debt collection efforts

If the statute of limitations has not expired, debt collectors can still take legal action to collect the debt. They can garnish your wages or put liens on your property to collect the money if they are successful.

If you have income or assets to protect, look to resolve collection action by paying or through a debt relief program, such as debt consolidation, bankruptcy or a consumer proposal.

Licensed Insolvency Trustees can stop collection calls, lift wage garnishments, end all legal action and freeze interest on debts.

Alternatively, speak to a Licensed Insolvency Trustee who can stop collection calls and help you negotiate with your creditors.

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The impact of debt on credit scores

If you don’t pay a debt in collections, it stays on your credit report for up to seven years. As a result, it damages your credit score, making it hard to borrow money, and you may pay a higher interest rate.

How a credit score is calculated in Canada

Can the statute of limitations be used to resolve my debt?

If you have no income or assets, you’re considered judgment-proof, and you might be able to use the statute of limitations to resolve your debt. However, legal action could occur if there is a change in your circumstances during this time.

If you owe money to a bank and have other accounts with them, the bank can exercise its right of set-off, which lets them take money from another account to pay the debt.

For example, if you owe credit card debt, the bank could take money from your chequing account to pay it back.

The right of offset (also called right of set-off)

While some collection agencies may stop chasing you for the debt after the limitation period ends, some may contact you indefinitely.

The first step is to find out how old the debt is. Many creditors sell old debts to debt collection agencies who attempt to trick customers into acknowledging the debt, which resets the limitation period.

Even if you successfully wait out the limitation period, bad debts can damage your credit score, so it’s best to pay your debts if possible.

Before you decide, speak to a Licensed Insolvency Trustee to talk through your options.

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Statute of limitations on government debts

While the statute of limitations applies to unsecured debts like credit cards, personal loans, and utility bills, some types of debts are different.

There are exceptions for government debts, so tax debts and student loans are not subject to provincial limitation periods and effectively can be collected indefinitely.

How re-aged debt works

Debt collectors can reset the statute of limitations, giving them more time to collect a debt. This is called re-aged debt.

This happens if you:

  • Make a payment towards your debt.
  • Acknowledge that you owe the money or state that you intend to pay.

This is why you must be extremely careful what you say to a creditor or collection agency, as you could unwittingly reset the limitation period.

When do debt collection agencies give up?

Once a collection agency has lost the ability to take legal action, they may give up and stop chasing you for the debt. But a debt collector can contact you indefinitely to collect the money owed.

How to stop debt collectors from contacting you

Hopefully, this article has given you an understanding of Canada’s statute of limitations on debt.

If you are struggling to pay off debts and want to stop collection agencies from contacting you, get free advice from a Licensed Insolvency Trustee.

A trustee is the only debt professional who can legally stop collection calls and reduce debt through formal and legally binding debt programs.

Get debt relief

Free consultation with a Licensed Insolvency Trustee by video, phone or in person.

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  • Personalized plan
  • No fees
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