If you’re overdue on a loan repayment, your creditor has the right to sell your debt to a collection agency, who can then come after you for the money you owe. But they can only pursue you as long as the limits set by the statute of limitations in Ontario on debt.
Let’s take a closer look at what the statute of limitations is in Ontario when it comes to debt, and how it relates to your rights and obligations as a consumer.
Key Points:
- A statute of limitations is a legal time limit within which a lawsuit or claim must be filed, after which it can’t be legally enforced.
- In Ontario, the statute of limitations for debt is two years from the date the creditor first knew or should have known about the default.
- Once the statute of limitations passes, creditors can no longer sue you to collect the debt owed.
- The statute of limitations doesn’t erase your debt, as you still legally owe the amount even after the two years pass.
What Is The Statute Of Limitations In Ontario For Debt?
The statute of limitations on debt in Ontario is two years, as specified under Section 4 of the Ontario Limitations Act.
At some point in the process of attempting to collect on your overdue loans, debt collectors may go so far as to take you to court. However, they only have a certain window of time to sue you. This is called a statute of limitations.
Once the statute of limitations is over, debt collectors may not be legally permitted to pursue litigation any longer. That includes obtaining a judgment to do one of the following:
Wage Garnishment
One way debt collection agencies try to cover your overdue debt is to have your wages garnished. But to do so, they must first file a lawsuit and get a judgment in court.
Debt collectors who choose this route must obtain a judgment within the two-year timeframe. Once this time has elapsed, they forfeit their legal ability to go after your wages.
Bank Account Garnishment
Dipping into your bank account is another way debt collectors may try to cover an outstanding debt. But again, they must first go through the courts to obtain legal permission to have your bank account garnished. And this must happen before the two-year deadline expires.
When Does The Statute Of Limitations In Ontario For Debt Start?
In Ontario, the statute of limitations starts when you miss a payment. If you make a payment or acknowledge the debt, the clock starts over again.
This is how debt collectors try to keep the window of opportunity to collect your debt open longer. If they convince you to make a payment or provide written acknowledgment of the debt as a way for you to reconcile your loan default, you may be inadvertently restarting the statute of limitations. This gives the debt collector another chance to go after you for money to make good on your overdue debt.
It should be noted that the statute of limitations can vary based on different types of debt. For instance, tax debt owed to the Canada Revenue Agency (CRA) has a statute of limitations of six to 10 years, depending on the specific tax type. While student loan debt has a limitation of six years.
Is My Debt Forgiven Under The Statute Of Limitations In Ontario For Debt?
No, your debt will not disappear under the statute of limitations. Even after the two years are up, you still owe the debt, and your debt collectors can still contact you to collect it.
The statute of limitations in Ontario just means that you can’t be sued by debt collectors. But you still will owe the outstanding debt. Plus, your account in collections will be noted in your credit report and stay there for 6 years.
In other words, you may be able to avoid potential legal action, but your debt will not automatically be forgiven.
How Long Does Credit Information Stay On Your Credit Report?
The length of time that information stays on your credit report depends on the type of information being recorded. In terms of accounts in collection, this information typically stays on your credit report — both for Equifax and TransUnion — for 6 years.
During this time, your credit score may suffer.
How Does Ontario’s Statute Of Limitations On Debt Compare To Other Provinces?
Ontario’s statute of limitations on debt is among the shortest in Canada, including Alberta, BC, Saskatchewan, New Brunswick, and Nova Scotia. These provinces all set their statute of limitations on debt at two years.
Manitoba, PEI, and all three territories have six-year limits, while Quebec has a three-year limit. In these regions, creditors have significantly more time to initiate legal action.
What Happens When My Debt Disappears From My Credit Report?
Delinquent debt records will not stay on your credit report forever. At some point, they will disappear. According to TransUnion, collections and defaulted credit accounts are automatically removed from your credit report six years after the date the account first became delinquent.
Once negative items fall off your credit report, your credit score may improve. You can help improve it further by being responsible with your debt, such as paying your bills on time and spending less than 30% of your credit limit on your credit cards.
Learn more: Why Did An Account In Collections Disappear From My Credit Report?
What Happens If You Choose To Ignore Your Debt Until The Statute Of Limitations Expires?
Ignoring your debt will not make it go away. As mentioned, the clock on the statute of limitations in Ontario begins when you miss a payment. During this time frame, debt collectors and creditors can still come after you for the debt and take legal action.
Once the statute of limitations expires, debt collectors are no longer allowed to sue you to collect the outstanding debt.
However, your creditors can still technically continue trying to collect what you owe. And if you’re not careful, you could inadvertently restart the clock on the statute of limitations.
What Is Re-Aged Debt?
Re-aged debt refers to restarting the statute of limitations clock on old debt. This two-year time frame starts over when you make a payment or acknowledge your debt before the two-year statute of limitations expires. However, debt collectors can no longer exercise the right to sue you once the statute of limitations period has passed.
How Does Debt Collection Work In Ontario?
In Ontario, debt collection works as follows:
- Initial Contact By Letter: The first contact will be in the form of a letter, which the debt collection company will send, letting you know that they would like you to start paying your debts.
- Follow-Up Phone Call: A few days after the letter, they will call you and ensure that you know who they are, how much you owe and other relevant information.
- Explore Payment Options: Then, it’s up to you to work out a way to pay your debts. Most debt collection agencies will offer you a few different payment options. Of course, you can opt to pay it off in full, but you can also work out a payment plan or even try for a settlement, which could end in you paying off only a portion of your original debts.
- Ongoing Contact If You Don’t Respond: If you don’t pay up or don’t answer their calls, there is a good chance that they will continue pestering you nearly every day.
- Potential Legal Action: Eventually, if the debt is large enough, they might try to take legal action against you.
What To Do If A Debt Collector Is Breaking The Law Or Harassing You
Debt collectors are required to follow specific rules when it comes to collecting unpaid Debt. More specifically, debt collectors are not allowed to do the following:
- Contact your friends, family members, or neighbours unless you’ve given explicit permission.
- Request payment from anyone other than you, unless that individual is legally responsible for the debt as a cosigner.
- Use abusive or threatening language in any communication.
- Call you outside permitted hours for debt collection calls.
How Do You File A Complaint Against A Debt Collector?
If you are the victim of harassment from a debt collector, you can file a complaint with the Ontario government.
Before you formally file a complaint, make sure you inform the debt collector of your intentions. Ideally, send a notification in writing so you have it on record. Your letter should contain the name of the debt collection agency and a description of how your rights were violated.
If the debt collection agency doesn’t stop the harassment, submit your complaint to the Ministry of Public and Business Service Delivery online. Once your complaint has been submitted, it will be reviewed to determine whether any rules have been broken. You should hear back from the ministry within 15 business days.
Can I Ask To Have My Debt Reduced?
It may be possible to ask a debt collector to reduce the amount you owe. Many collection agencies are open to negotiation and often prefer settling for a smaller sum rather than pursuing your debt long-term.
Before negotiating with a debt collector, calculate what you can realistically afford to pay. If the agency accepts your offer, you can begin making payments toward the reduced balance. However, if you’re unable to stick to the new arrangement, you may find yourself back at square one.
So, make sure to crunch the numbers and carefully assess your finances before proposing a reduced debt amount to a collection agency.
Learn more: How Much Will A Debt Collector Settle For?
Bottom Line
Being overdue on debt payments and having your credit score negatively affected is bad enough. But having a debt collector call you all the time makes things worse. Fortunately, there are rules when it comes to how debt collectors can contact you, and the threat of legal action will end once the statute of limitations in Ontario expires. That said, you should do your best to deal with your debt to avoid the nuisance of collection calls.
