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.
What Is The Statute Of Limitations In Ontario For Debt?
The statute of limitations on debt in Ontario is two (2) 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 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 simply means that you cannot be sued by debt collectors. You still will owe the debt. Moreover, your account in collections will be noted in your credit report and remain for 6 years.
In other words, you may be able to avoid potential legal action, but your debt will not automatically be forgiven.
What Happens When My Debt Dissapears 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.
What Happens If You Choose To Ignore Your Debt Until The Statue 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?
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. 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.
Then, it is 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.
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. 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?
Despite the many laws and regulations put in place to protect consumers from debt collectors, some of them will still push beyond the legal limit of what they are allowed to do.
One of the common rules that exist across all provinces is that debt collectors are not permitted to use abusive language or harass you as part of their strategy to collect debt.
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 or not any rules have been broken. You should hear back from the ministry within 15 business days.
Bottom Line On The Statute of Limitations For Ontario Debt
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.
