Do Not Pay Old Debts

Canadians may--should they choose to do so--be able to avoid paying a debt due to the passage of time.

A Canadian, however, cannot take advantage of the passage of time to avoid paying all categories of debt. It is not possible to avoid paying a government debt or unpaid support due to the elapse of time.

This topic is a state secret

Some of you may be wondering why you have never heard that it is possible to avoid paying a debt due to the passage of time.

In Canada there are thousands of individuals employed full-time in the debt relief industry. These individuals might be employed by any one of the following firms:

1. firm providing debt consolidation loans

2. credit counseling firm

3. firm offering debt settlement services

4. Licensed Insolvency Trustee

5. debt consultants

The individuals working at these firms earn revenues when a consumer "signs up" for a service offered by these debt relief providers. These individuals do not earn a penny informing you about avoiding having to pay your debt due to the passage of time.

PART ONE: YOUR UNPAID ACCOUNT DOES NOT APPEAR ON YOUR CREDIT REPORT

Each province in Canada has a law dictating how long your unpaid account can legally remain on your credit report. With the exception of Ontario residents, Canadians are entitled to have unpaid accounts removed from their credit report six years from the date of their last payment.

In Ontario, an unpaid account can remain on a resident's credit report for seven years. There are two credit reporting agencies in Canada, Equifax Canada, and TransUnion. It is Equifax Canada's policy that an unpaid account should be removed from an individual's credit report six years after the date of last payment regardless of which province they live in. If your creditor has reported your unpaid account to TransUnion then this debt can legally appear on your credit report seven years from the date of last payment.

As a general rule, if your unpaid account does not appear on either your Equifax Canada nor your Transunion credit report then I recommend that you do not pay it because you will derive no financial benefit from doing so.

The fact that an unpaid account does not appear on your credit score means that it is not a barrier to you obtaining a loan or credit at a future date.

You may, however, wish to pay or resolve an unpaid account that does not appear on your credit report because you feel morally obligated to do so.

PART TWO: THE LIMITATION PERIOD HAS EXPIRED ON YOUR UNPAID ACCOUNT

You may also choose not to pay an unpaid account where your creditor has failed to sue you before the expiry of the relevant limitation period.

a. The limitation period in a particular province or territory

Each province and territory in Canada has a law referred to as a statute of limitations. With the exception of Quebec, Newfoundland, PEI, and the three territories, the statute of limitations for debts in Canada is two years. In Quebec it is six years in Newfoundland, Prince Edward Island, and the three territories.

b. When does the clock on the limitation period begin to run?

When calculating whether a limitation period has expired it is very helpful to think of a limitation period as a clock. The clock on a limitation period will begin to run sometime during the six-month period following the date of your last payment on your account.

c. Some provinces suspended limitation periods due to Covid-19 pandemic

In response to the Covid-19 pandemic, some, but not all, provinces suspended limitation periods for a period of between six and fourteen months.

d. Restarting the clock because of a consumer's partial payment

If, prior to the expiry of a limitation period, an individual makes a partial payment on their unpaid account then this will restart the clock on a limitation period. Accordingly, if your goal is to avoid paying a debt due to the passage of time then, under no circumstances, you should not make any payments on your account.

e. Restarting the clock due to a written acknowledgement of your debt

If, prior to the expiry of a limitation period, an individual makes a written acknowledgement of their debt to his or her creditor or its authorized collection agent then this will restart the clock on a limitation period. A verbal acknowledgement of your debt will not restart the clock on your limitation period--only a written acknowledgement.

f. Legal consequences of the expiry of a limitation period

On the date that a limitation period on your unpaid account expires your debt does not magically disappear. The debt still exists. Your creditor, however, is now in a much worse position attempting to recover monies from you.

If your creditor were to sue you after the expiry of a limitation period then all you would have to do is to file a timely Defence with the court, pleading the expiry of your province's statute of limitations as a full and complete defence and you would win this lawsuit.

If, however, your creditor were to sue you after the expiry of a limitation period and you failed to file a timely Defence, or failed to file a Defence pleading the expiry of your province's statute of limitations as a full and complete defence then your creditor would obtain a default judgment against you.

g. Legality of collection calls after the expiry of a limitation period

As noted earlier, the fact that the limitation period has expired on your debt does not mean that your debt is extinguished. Your debt does still exist. Your creditor, and its authorized collection agent, have every right to continue to make payment demands including making collection calls on your unpaid account. In Alberta, however, it is illegal for an individual to receive collection calls more than six years after the date of last payment unless a creditor has obtained a judgment against an individual.

For those of you who prefer to learn watching a YouTube video here is a YouTube video on the same topic.

In this YouTube video titled "Do Not Pay Old Debt (Limitation Periods)" I explain how Canadians can avoid paying a debt due to the passage of time.