When dealing with unpaid debts, you might encounter the term ‘statute barred debt’. Understanding what this means is essential, especially if you’re struggling with overdue payments or creditor pressure. In this article, we’ll explain ‘what is statute barred debt’, how it applies in Canada, and what your rights and obligations are under the law.
What is statute barred debt?
Statute barred debt refers to a debt that is too old for creditors to enforce through legal action. In Canada, each province has a statute of limitations that sets a specific time limit during which a creditor can sue a debtor to collect a debt. See, for instance, Ontario’s debt statute of limitations. Once this time limit has passed, the debt becomes statute barred, meaning creditors lose the legal right to pursue you in court. It’s important to note, however, that even though they can’t take legal action, creditors can still attempt to collect the debt through other means, such as collection calls and letters.
What is the statute of limitations on debt in Canada?
The statute of limitations varies across provinces and territories, generally falling between 2 to 6 years. The countdown begins from the date of the last payment or when you acknowledged the debt. Here’s an overview of the statutes of limitations in various provinces:
Provinces/Territories | Statute of Limitation Length |
Alberta, British Columbia, New Brunswick, Ontario | 2 years |
Quebec | 3 years |
Manitoba, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Saskatchewan, Yukon | 6 years |
It’s important to note that the statute of limitations only applies to unsecured debt, such as credit card debt, personal loans, and lines of credit. It does not apply to secured debt like mortgages or car loans.
How does statute barred debt work?
Once a debt becomes statute barred, creditors can no longer sue you for repayment. This doesn’t mean the debt is erased or forgiven, however. It remains on your credit report and could still impact your credit score. Your creditor may continue to ask for payment, but they have no legal recourse to enforce it. If you acknowledge the debt, make a payment, or agree to a new payment plan, the statute of limitations can reset, allowing creditors to take legal action again. It’s important to be cautious when dealing with old debts and avoid actions that might reset the clock.
What should you do if you have statute barred debt?
We recommend taking the following actions if you find yourself with statute barred debt:
- Verify the debt: if a creditor contacts you about an old debt, check the date of your last payment to see if it is statute barred.
- Know your rights: while creditors can no longer sue you after the statute of limitations has expired, they can still report the debt to credit bureaus, which may affect your credit score.
- Don’t restart the clock: avoid acknowledging the debt or making a payment unless you’re prepared to commit to paying it off. Acknowledging the debt in writing or over the phone could reset the statute of limitations, giving the creditor a new opportunity to sue.
- Seek financial advice: if you’re unsure about how to handle statute barred debt, speak to a Licensed Insolvency Trustee. As the only professionals in Canada legally able to file all forms of debt relief, they can help you to navigate your options and ensure you don’t inadvertently restart the statute of limitations.
Can statute barred debt be written off?
In Canada, statute barred debt remains legally owing even though creditors can’t sue you for it. There are, however, options available to help you get rid of old debts:
- Consumer proposal: this is a legally binding agreement where you offer to repay a portion of your debt over a set period. It can reduce your debts by up to 80%, and at Spergel, we’ve been helping Canadians to gain debt relief for over 35 years. One of our Licensed Insolvency Trustees can help negotiate a consumer proposal with your creditors.
- Bankruptcy: in cases of extreme financial distress, declaring bankruptcy can discharge most unsecured debts, including statute barred debt.
Both of these debt relief options will legally stop creditors from contacting you about old debts via a stay of proceedings, and provide a fresh financial start.
Does the statute of limitations apply to tax debt too?
Yes, and this is important – unlike other kinds of unsecured debt, like personal loans or credit card debt, any tax debts owed to the Canada Revenue Agency (CRA) has a limitation period of either 6 or 10 years, depending on the kind of tax debt owed. This is a significant difference, and something to be aware of as the CRA has unparalleled collection powers compared to other creditors. Other forms of government debt, like student loan debts, have a statute of limitations of 6 years.
What enables the statute of limitations to be reset?
The limitation is measured from your last acknowledgement or payment of your debt and will reset if you:
- Make or promise to make a payment (or partial payment)
- Enter into a payment/settlement plan
- Put a new charge on the account
- Admit the debt is yours by providing any written or recorded acknowledgement
You can still talk to debt collectors if you’re relying on the statute of limitations to run out — but be careful what you say because acknowledging the debt may restart the clock. But you can ask who’s calling, get more details on the debt they’re pursuing, and confirm their credentials without resetting the clock.
What if you fail to pay collections?
If your debt has gone to a collection agency, it’s most likely because you’re defaulting on your payments. Often, you’ll be contacted via phone or mail to let you know that you are overdue on your debts. In occasional circumstances, you might be offered a manageable payment plan to repay your debts in instalments. If, however, this isn’t possible for your to fulfil, you’ll likely begin to experience increased pressure from debt collectors. You might experience frequent communications. When your debt is transferred to a collection agency, you’ll also likely experience a negative impact on your credit score. If you fail to make payments despite collections, this could also have consequences on your credit score too. Often, collection agencies will begin to threaten pursuing legal action or a wage garnishment against you too. In this scenario, we recommend you speak to a Licensed Insolvency Trustee as soon as possible to avoid any further consequences, permanently stop collections agencies from contacting you, and to resolve your debt once and for all.
Statute barred debt: FAQs
Here are some of the most commonly asked questions we receive about statute barred debt:
How long can you legally be chased for a debt in Canada?
In Canada, creditors can legally pursue you for a debt for up to 2 to 6 years, depending on the province. This time frame, called the ‘statute of limitations’, typically begins from the date of your last payment or acknowledgment of the debt. Once the limitation period expires, creditors can no longer sue you to collect the debt, though the debt itself still exists and may impact your credit score.
Does debt disappear after 7 years in Canada?
No, debt does not disappear after 7 years in Canada. However, after 6 – 7 years, most debts fall off your credit report, meaning they no longer affect your credit score. While this can improve your credit history, the debt itself still exists, and creditors can continue to seek repayment unless it’s legally discharged, such as through bankruptcy or a consumer proposal.
What does statute barred mean in Canada?
In Canada, ‘statute barred’ refers to a debt that can no longer be legally pursued through the courts because the limitation period has passed. Each province has a statute of limitations, typically ranging from 2 to 6 years, which limits how long a creditor can sue for unpaid debt. Once a debt becomes statute barred, while the debt still exists, creditors cannot take legal action to enforce repayment.
How do I know if my debt is statute barred?
To determine if your debt is statute barred in Canada, check when you last made a payment or acknowledged the debt in writing. The limitation period, which ranges from 2 to 6 years depending on your province, typically starts from that date. If no payments or written acknowledgments have been made within this time frame, your debt may be statute barred. You can also review your credit report or consult with a Licensed Insolvency Trustee for clarification.
Statute barred debt may offer some relief by preventing creditors from taking legal action, but it doesn’t eliminate your financial obligations. Understanding your rights and the rules around statute barred debt is key to managing old debts effectively. If you’re facing challenges with debt and need help finding a solution, Spergel’s Licensed Insolvency Trustees can guide you through debt relief options like consumer proposals and bankruptcy, ensuring you regain control of your financial future. Book your FREE, no-obligation consultation today.