Debt Statute of Limitations Ontario: How Does It Work?

If you are receiving unwanted calls and letters from creditors or collection agencies threatening to take you to court, it can be a miserable experience.

You also might be wondering how long can a collection agency collect on a debt in Ontario. The good news is debt collectors only have a certain number of years to take legal action against you.

In this article, we look at Ontario’s debt statute of limitations and your rights regarding statute-barred debt.

Debt statute of limitations Ontario

If you owe money to a creditor, they can pass the debt to a debt collection agency. These agencies can take you to court to recover the debt owed, leading to wage garnishments and other legal action.

However, Ontario debt collection laws specify how long legal action can be taken against you to collect a debt.

Under the Ontario debt statute of limitations, creditors and collection agencies can only take legal collection actions for two years, starting when you last acknowledged the debt or made a payment. After that, they cannot take any further legal action.

Making a partial payment or acknowledging the debt will reset the limitation period, and the clock will restart. If you don’t update a creditor or collection agency with your new address or phone number, this can also lengthen the statute period.

Collection agents may use various tactics to extend the collection period, such as requesting a small token payment or asking you to confirm that you owe the debt via letter or email.

Types of statute barred debt in Ontario

The Ontario statute of limitations covers most unsecured debts. Examples include credit card debt, personal loans, payday loans, lines of credit and utility bills.

With secured debts such as mortgages and car loans, a creditor can collect the asset tied to the loan if you default, which could result in foreclosing on your home or repossession of a vehicle.

CRA statute of limitations

The two-year limitation period does not apply when it comes to tax debts. The Canada Revenue Agency (CRA) has a collections limitation period of up to 10 years which can be extended.

As they are part of the federal government, the CRA does not require a court judgment. It has a raft of collection powers, including 100% wage garnishments and the right of set-off to redirect funds.

What is the statute of limitations on student loans?

There is no limitation period for federal student loans. When you miss nine months of student loan payments, the federal part of your loan is sent to the Canada Revenue Agency (CRA) for collection, which has the power to collect at any time for an unlimited period.

What happens if the debt is past the statute of limitations?

Once the statute of limitations has passed, legal collection action can no longer be taken against you.

When this happens, your creditors may stop pursuing you, especially if you have no income or assets. However, you will always owe the statute-barred debt, so debt collection agencies can attempt to collect for as long as they want. You might still receive collection calls and letters.

If you don’t pay debts in collections, this information appears on your credit score for six years, which hurts your credit score. This makes it harder to borrow money, and you may pay a higher interest rate.

Even after the debt drops off your credit report, your creditor will still have a record of what you owe, making it unlikely that they will lend you money again.

Should I ignore the debt statute of limitations?

Don’t ignore debt collection action if you have a job or assets to protect. Waiting for the debt statute of limitations to expire is unnecessary and damaging, and there are better ways to resolve the issue.

How to get debt collectors to stop calling

There are a few ways to deal with debt collectors or collection agencies.

1. Pay what is owed

Pay the creditor or collection agency to stop further action. Talk to the original creditor to determine the best way to pay.

Make a budget-friendly monthly payment plan, and don’t let anyone pressure you into an agreement you can’t afford.

2. Negotiate a payment plan

It is possible to negotiate with the original creditor rather than the debt collector if the debt has only recently been sent to collections. If this is the case, you can often set up a payment plan instead of paying off the total balance.

3. Negotiate a settlement amount

If you cannot return to the original lender, debt collectors will typically negotiate a reduced settlement if you pay a lump sum. Just ensure you receive the agreement in writing and get a receipt after you pay.

4. Work with a Licensed Insolvency Trustee

Licensed Insolvency Trustees are the only professionals who can administer government debt relief programs such as consumer proposals and bankruptcy.

Both a consumer proposal and bankruptcy legally stop all legal action from debt collectors. Collection calls and wage garnishments stop immediately, and interest and charges are frozen.

A consumer proposal is a debt forgiveness program that can reduce your debt by up to 80% and protect your assets. If you have a low income and no assets, bankruptcy might offer a better way out of debt.

Get help with Ontario’s statute of limitations and learn what debt relief options work for you by arranging a free consultation with a Licensed Insolvency Trustee.

Frequently Asked Questions

Let’s finish off by answering a few common questions about the debt statute of limitations in Ontario.

Can creditors garnish wages after a statute of limitations in Ontario?

Once the Statute of Limitations period of two years has passed for debt in Ontario, the creditor can no longer garnish your wages.

How to use the Ontario statute of limitations as a defence

If you receive notification of legal action, you must file a defence to inform the court that the debt is past the limitations period. If you ignore it, the creditor may still be able to obtain a judgment.

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