For those Canadians struggling to pay their debts, the passage of time can often be their greatest friend and ally.
A significant percentage of Canadian adults with debt problems have no idea that the passage of time may put them in a position to save thousands--and potentially thousands of dollars--eliminating their debt. Firstly, a Canadian might take advantage of the expiry of a limitation period to avoid paying a debt altogether. Secondly. he or she might use a limitation period as a club when negotiating a favourable one-time lump sum settlement with a creditor.
What is the impact of the passage of time with respect to an unpaid account?
I have been providing advice to Canadians facing debt problems over the past two decades. Invariably, these individuals, like most Canadians, are unclear when it comes to the impact of the passage of time on those with unpaid accounts. To be more specific, there is tremendous confusion regarding the answer to the following three questions:
1. Under what circumstances might a consumer be able to avoid paying a debt due to the passage of time?
2. When should an unpaid account be removed from a Canadian's credit report?
3. When must a creditor--or their authorized collection agent--stop making payment demands in connection with an unpaid account?
UNDER WHAT CIRCUMSTANCES MIGHT A CONSUMER BE ABLE TO AVOID PAYING A DEBT TO THE PASSAGE OF TIME?
i. What is a limitation period?
In order to facilitate commerce, each provincial and territorial government in Canada, has passed a law providing a window during which a plaintiff can sue a defendant for various reasons. In the context of unpaid accounts, a creditor must sue the consumer within a certain time period otherwise the consumer will be put in a position in which he or she can successfully defend a lawsuit taking advantage of the expiry of a limitation period.
The relevant limitation period for you is the province or territory in which you live. Most Canadians live in a jurisdiction where the limitation period on consumer debt is two years. In Quebec the limitation period is three years. In the remainder of Canadian jurisdictions the limitation period is much longer, six years.
ii. What types of debts might a Canadian be able to avoid paying due to the expiry of a limitation period?
A Canadian cannot take advantage of the expiry of a limitation period to avoid paying a debt in connection with the following categories of debts:
monies owing to the government
child support and spousal support
a debt where the creditor has sued sued the consumer before the expiry of a limitation period
a debt where the creditor sued the consumer after the expiry of a limitation period and the consumer did not file a timely defense and plead the expiry of his province's limitation period as a full and complete defense
iii. When does the clock on a limitation period begin to run?
When I explain limitation periods to individuals I invariably use a clock analogy.
Most people find it impossible to discuss the concept of limitation periods with using the analogy of a clock.
As a rule of thumb, the clock on the limitation period clock begins to run sometime within six months from the date of last payment with respect to a particular account.
iv. What can a Canadian do to restart the clock on a limitation period?
There are two things that a Canadian can do to restart the clock on a limitation period. These include the following:
making a partial payment before the expiry of a limitation period
making a written acknowledgement of the debt
If you were to either make a partial payment today or make a written acknowledgement of this debt today then the clock with respect to the limitation period on this debt would be reset to today's date.
v. The Covid-19 pandemic and pauses to the running of the clock on limitation periods
Due to the problems operating the courts during the Covid-19 pandemic some provinces have paused or frozen the running of the clock on limitation periods.
vi. What are the consequences of the expiry of a limitation period?
When the limitation period on your consumer debt expires then--your debt is not extinguished or evaporates--but you obtain a beast of a legal defense commonly referred to as the expiry of a limitation period.
An example will help illustrate this concept.
Walter Bandeiros, a self-employed truck driver, lives in Cambridge, Ontario, and he has five credit cards, all with different credit card issuers. He was involved in a serious motor vehicle accident on Highway 401 on January 1, 2018. The date of his last payment on each of these five credit cards is during the month of December of 2017. On January 1, 2018, Walter Bandeiros' total outstanding balance on these five credit cards was $35,000.
These five credit cards are all unsecured credit cards. None of these credit cards are part of a secured loan under which Walter received a line of credit to do home repairs and to receive credit cards secured by the secured loan.
At no time after January 1, 2018, did Walter Bandeiros make a partial payment on these five unsecured credit cards. Furthermore, at no time after January 1, 2018, did Walter Bandeiros make a written acknowledgement of his indebtedness in connection with any five of the above-noted credit cards.
Ontario's statute of limitations is two years. For ease of reference, let's assume that Walter's date of last payment on all five of these credit cards was January 1st of 2018. These five credit card issuers had somewhere between two years and two and a half years from January 1, 2018, to sue Walter Bandeiros. In fact, none of them did.
Walter Bandeiros is in a position to rely upon the expiry of Ontario's two-year limitation period to decline to pay the outstanding balances on these outstanding credit cards. By doing so Walter would avoid paying $35,000 in debt although this debt would not be eliminated.
If one of these credit card issuers were to sue Walter after the expiry of the 2-year limitation period it would be necessary for Walter to arrange to file a timely Defence with the courts and specifically pleading the expiry of Ontario's 2-year statute of limitations as a full and complete defence. By doing so, Walter should successfully defend this lawsuit. If Walter were not to defend this lawsuit, as described above, Walter's creditor would obtain a default judgment against him.
Walter might also decide that he wants to accomplish the dual goal of (1) rehabilitating his credit score, and (2) repaying as little as possible of his $35,000--plus incurred interest--on these five credit cards. In this scenario Walter might decide to speak to his creditors--or their authorized collection agents--and inform them that he would be willing to pay 25 percent of his outstanding indebtedness on the condition that he first received a satisfactory settlement letter from the creditor or the creditor's authorized collection agent confirming that they would accept a lump sum payment equal to 25 percent of the current outstanding balance as settlement in full.
I have helped plenty of people in Walter's shoe's with this process.
WHEN SHOULD AN UNPAID ACCOUNT BE REMOVED FROM A CANADIAN'S CREDIT REPORT?
Virtually every province in Canada has a law that governs when an unpaid account must be removed from an individual's credit report. With the exception of Ontario, the law across Canada is the same. There are two credit reporting agencies operating in Canada, Equifax Canada and TransUnion.
i. The law in Canada excluding Ontario
If you live anywhere in Canada--with the exception of Ontario--under provincial law it is illegal for an unpaid account to appear on your credit report more than six years from the date of your last payment.
ii. The law in Ontario
Under the Ontario Credit Reporting Act an unpaid account can appear on your credit report for seven years from the date of your last payment.
With respect to Ontario residents, it is the practice of Equifax Canada that an unpaid account will drop off the consumer's credit report six years from the date of last payment. In contrast, if you live in Ontario and your debt is reported to TransUnion then your unpaid account will remain on your credit report for seven years.
iii. Dirty tricks by unethical debt buyers and unethical collection agencies
Debt buyers and collection agencies have considerably more leverage in their interactions with debtors if an unpaid account appears on a consumer's credit report. A consumer who is attempting to obtain a mortgage or financing for an automobile will be highly motivated to pay an outstanding account if it appears on their credit report. Not all debt buyers and collection agencies are unethical.
Some unethical debt buyers and unethical collection agencies, however, find it lucrative to play various dirty tricks resulting in an unpaid account appearing on an individual's credit report much longer than it should. These dirty tricks are illegal. These bad actors too often get away with these schemes because the unsuspecting consumer is not aware that they are effectively being conned into paying an old debt in order to obtain credit.
I will often receive phone calls from individuals who inform me that they cannot get a mortgage because an old debt they have forgotten about or don't remember shows up on either their Equifax Canada or TransUnion credit report. Over the past 10 years I have developed a number of tactics for confirming the date of last payment with the original creditor and motivating both the credit reporting agency and the bad actor to take remedial action and remove an unpaid account from a credit report when it ought not legally appear.
WHEN MUST A CREDITOR--OR THEIR AUTHORIZED COLLECTION AGENT--STOP MAKING PAYMENT DEMANDS IN CONNECTION WITH AN UNPAID ACCOUNT?
As long as an outstanding account remains unpaid a creditor--or their authorized collection agent--is lawfully entitled to make payment demands in compliance with provincial law regulating collection calls.
With the exception of Alberta, there is no provincial law limiting the number of years that a creditor, or their authorized collection agent, can communicate with a consumer demanding payment of an unpaid account. Under Alberta law, however, a debt buyer or a collection agency is prohibited from making a payment demand more than six years after the date of last payment on an account unless the creditor has sued the consumer and obtained a judgment against the consumer with respect to a particular account.
Some readers may prefer consuming information by watching a video instead of reading an Article. If you fall into this category then the Debt Coach Silverthorn YouTube channel has just the video for you on this very topic.
In this 12-minute YouTube video former collection agency lawyer and author describes how the impact of the passage of time on an unpaid account.
Former collection agency lawyer, and author, Mark Silverthorn, is a student of the collection industry, and the bane of creditors, and unethical debt buyers and unethical collection agencies.
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