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It can be stressful getting calls from a collection agency in Canada. They can call you at home or at work, and while there are limits to what they are allowed to do, it can still feel like harassment and a constant reminder of your financial position.
If you’re surprised to hear from a debt collector because the debt is old, you may be asking, “Can a debt be too old to collect?” In some cases, you may not even recognize the debt. You’re not likely to forget about an auto loan or debt to the bank. The bank isn’t likely to let you forget about credit card debts, and auto lenders can repossess your vehicle. However, you may have forgotten about an old bill from the dentist, vet, catering company, utility company, or another small business or professional you couldn’t or forgot to pay.
These businesses may not take immediate action to collect from you, but they can hire a collection agency in Canada or sell it for pennies on the dollar. They can even do this years later, surprising you with collection calls when you’d long forgotten about it.
How Long Can a Debt Collector Pursue Old Debt?
Debt doesn’t disappear just because it’s been a long time since you thought about it. However, there are limits on debt collection in Canada.
A collection agency in Canada can make attempts to collect forever, but they only have a few years to sue and take legal actions to collect. Within the limited period, your creditor can sue. With a court judgement, creditors can take more aggressive action to collect. These include:
- Wage garnishment, where the court orders your employer to withhold a portion of your paycheck and send it to your creditor instead of you. This is often used if you are employed but have no savings.
- Bank account garnishment, where the court orders your bank to withdraw funds from your bank account to pay your creditor. If you have savings but refuse to pay the debt, this could be a possibility. Only the CRA can garnish your bank account with a judgement, although if you owe money to the bank, they can use the Right of Offset to withdraw money from your account and put it toward your debt.
The only way to stop a wage garnishment is to pay off the debt or through the Stay of Proceedings that comes when you file a consumer proposal or bankruptcy. In addition to putting a stop to all current legal actions taken against you to collect unsecured debts, it protects you from any new ones as well.
The length of time the creditor has depends on what province you live in. The maximum limitation period in Canada is 6 years from the date you made your last payment, but it’s limited to only 2 years in Ontario.
The costs of suing for debt can be substantial, which may deter collection agencies in Canada from pursuing smaller sums. Nevertheless, they may attempt to keep their options open by getting you to take actions that will extend the statute of limitations.
What to Do When a Collection Agency Contacts You
When you start hearing from a collection agency in Canada about an old outstanding balance, be careful about how you proceed.
In cases where you don’t recognize the debt, you should do some research to verify that collection actions are legitimate. First, find out the collector’s name and/or the name of the company, as well as their contact information. They should provide this information if they are legitimate. Avoid giving out any additional personal information of your own until you know more.
Next, call the company that the creditor claims is the original creditor. Debt collection in Canada can be outsourced or even sold to a collection agency. However, you can confirm with the company whether the collection agency has the right to collect. Now could also be a good time to check your own credit report.
You can dispute the debt if you believe you have been wrongly contacted. If the amount is wrong or you don’t owe anything, send the collection agency a letter disputing it. They should then stop contacting you until they can provide written verification of the debt.
How a Creditor Can Reset the Limitation Period
Another reason to be cautious dealing with a collection agency in Canada is that certain actions can reset the statute of limitations, allowing them to pursue legal actions again.
The limitation period begins on the date that you made your last payment toward the amount owing. If the limitation period has not yet expired, it will restart if you make any payment, no matter how small, or if you acknowledge that you owe the debt in writing.
Once the limitation period has ended, it cannot be reset again, but as long as it is available, debt collectors may try to reset the period to buy more time to take legal action. Some of the tactics they may employ include:
- Asking for a token payment as a gesture of good will.
- Requesting a letter or email or text in which you ask for more time and explain your financial circumstances.
Following along with either of these will reset the statute of limitations, giving the collection agency more time to take legal action against you.
Before you respond to collection calls, check your records to determine the date of your last payment.
How Long Will Debt Reported by Credit Bureaus?
In Canada, two credit bureaus report on the status of your debt, payments, and non-payments. When you owe money, whether it’s to the credit card company, phone company, or the bank, that creditor files information such as the existence of the account and your payment history with Equifax and TransUnion.
Other parties can then check your credit report with a permissible purpose. They may do this before approving a loan, approving you for an apartment, or offering you employment.
But the information does not stay there forever. Debts will no longer appear on your credit report 7 years from your last payment date. That doesn’t mean that the debt is gone – the debt is still yours until you repay it or you are discharged from it through insolvency. But it will no longer appear on your credit report and hinder you from getting a new loan.
What Can You Do About Debts in Collection?
You may be able to avoid paying a debt if you can wait 7 years for it to disappear from your credit report, all while you ignore collection calls forever. Unfortunately, debt doesn’t disappear, no matter how long you try to wait it out.
There are other ways to deal with debt than ignore it and hope it will go away.
Negotiate with Your Creditors:
One of the first things you should do when you realize you can’t keep up with debt payments is talk to your creditors about dealing with your debt. Because debt collection in Canada can be so time-consuming and expensive for the collector, creditors are often willing to work with you on a repayment plan that you can afford.
The earlier you do this, the better. Many people would rather negotiate with their original creditor than a collection agency, but once the original debtor sells it off, debt collection in Canada can be done by an agency you’ve never dealt with before.
If you want to negotiate with a debt collection agency, keep in mind the statute of limitations and what may happen if you acknowledge the debt in writing. Don’t start negotiations unless you genuinely plan to repay it.
If your creditors are not willing to cooperate, or you owe more than you can afford to pay, it may be time to file a consumer proposal or bankruptcy. Insolvency proceedings give you a path to discharging your debts.
Consumer proposals and bankruptcy will require you to repay some of your debts. In a consumer proposal, that will come in the form of fixed but reduced monthly payments. In bankruptcy, your creditors collect the proceeds from certain liquidated assets.
Both involve forgiving a significant amount of debt that will be discharged once the process is complete. You’ll be completely free from your creditors, collection agencies, calls, and legal actions against you.
It’s Time to Deal with Debt
While the statute of limitations protects you from legal actions after a certain period of time, debt collection in Canada has no expiry date. Collection agencies can continue to contact you, and the debt never really goes away, even if it no longer appears on your credit report. How you want to deal with it is up to you.
If you want to discharge old and current debts, Licensed Insolvency Trustees can provide guidance. A consumer proposal or bankruptcy can discharge you from all of your legally enforceable unsecured debts and put a stop to collection calls. You don’t have to be stuck with debt forever.