What Is The Statute Of Limitations For Debt In Canada?

Owing money on debt that you can’t afford to pay can feel incredibly stressful. If your debt has gone to collections, you might question what will happen if you don’t pay. 

While a collection agency can take you to court for unpaid debts, this has to happen within the timeframe set by the statute of limitations. Each province and territory sets a statute of limitations, which varies from two to six years. 

If you have debt in collections, it’s important to understand the limitations so you can protect yourself.  

What Is The Statute Of Limitations For Debt In Canada?

The statute of limitations is a law that establishes how long a creditor or collection agency can pursue legal actions for unpaid debt. 

The length of the statute of limitations depends on a few main factors, including:

• Your province or territory. Each province and territory sets a statute of limitations ranging from two to six years.
• Type of debt you owe. Not all debt is subject to the statute of limitations.
• Time since your last acknowledgment. If at any time you acknowledge your debt, the limitation period restarts. You can acknowledge your debt by confirming it is yours in writing or by making a payment.

Does The Statute Of Limitations Apply To All Types Of Debt?

The statute of limitations only applies to unsecured debt such as an unsecured personal loan or credit card. Certain debts are subject to different rules, and the specifics can vary between provinces and territories. For instance:

• Student loans: If you owe on your Canada Student Loans or Canada Apprentice Loans, there is a six-year limitation period that begins the day after your loan becomes effective.¹
• Employment insurance (EI): If you receive an overpayment from employment insurance (EI), the limitation period is also six years and starts the day of the overpayment.¹
• Tax debt: The limitation period for the collection of tax debt is either six or ten years.² Like unsecured debt, acknowledging your tax debt by making a voluntary payment or writing a letter to the CRA to propose a payment arrangement can cause the limitation period to restart.

The statute of limitations does not apply to secured debt such as mortgage debt. With secured debt, there are other strategies lenders can use to try and reclaim their money. For instance, mortgage lenders can foreclose your home to try and get back what you owe.    

Statute Of Limitations By Province

The following table shows the statute of limitations for each province and territory. 

What Can Creditors Do Before The Statute Of Limitations?

Before the statute of limitations has passed, creditors or collectors can call you to try and collect the debt you owe. They can also take you to court.

For example, if you fail to pay your water or gas bill, the utility company or a collector can sue you. If you are sued, your creditors can take several steps to collect the money, including garnishing your wages or seizing your property. 

What Can Creditors Do After The Statute Of Limitations?

After the limitation period has run out, your creditors can no longer take legal action against you. However, collectors can continue to call. Even if a collector threatens legal action, they can’t pursue it after the limitation has passed. 

If you feel like you’re being harassed by collectors, you can file a complaint with your province or territory’s Consumer Protection Office. 

What Is Re-Aged Debt? 

Re-aged debt is when you restart the statute of limitations. For instance, if you live in a province where the limitation is two years and before the two-year period is up, you make a small payment towards your debt, this restarts the clock. In other words, you’ve re-aged your debt.  

What Can Reset The Statute Of Limitations?

As mentioned above, when you acknowledge the debt is yours, this can reset the statute of limitations. There are a few different ways you can acknowledge your debt, including: 

• Agreeing to pay. If you sign something or produce a written document stating that the debt is yours, this can restart the clock.
• Making a payment on your debt. If you decide to make a payment on your debt, this is a form of acknowledgment.

Should You Pay Your Debt or Use The Statute Of Limitations To Your Advantage? 

If you can afford to pay your debt, you should consider doing so. While you can try and wait out the statute of limitations, there are several potential consequences. 

• Stress. If your debt goes to collections and you’re dealing with collector calls and the threat of being sued, this can feel very stressful. Even after the statute of limitations runs out, a collector can continue to call you.
• Legal action. Before the statute of limitations runs out, a creditor can take you to court and sue you. This can result in expensive legal bills, wage garnishment, property seizure, more debt, and major stress.
• Credit score. Having your debt sent to collections may cause your credit score to drop. This can make it more difficult to borrow money in the future, and you can expect to pay a higher interest rate. This information will remain on your credit score for up to seven years.

Additional Reading

Does Paying Off Collections Improve Credit Score In Canada?

Can A Collection Agency Charge You Extra Fees?

Why Did An Account In Collections Disappear From My Credit Report?

Bottom Line

If you have debt that’s gone to collections, and you can’t afford to pay, this can put you in a stressful situation. Receiving phone calls from collectors can be intimidating, as can the threat of legal action. Understanding the statute of limitations in your province or territory can help you to make a more informed decision about what to do next. If you’d like help navigating your debt, consider reaching out to a credit counsellor. A credit counsellor can assess your financial situation and provide knowledge and tips on how to manage your debt.   

Statute Of Limitations FAQs

References

1. Government of Canada. “Government programs collections limitation period.” 
2. Government of Canada. “Tax collections limitation period.”