Getting debt collection calls and letters can be frustrating, to say the least. When you’re getting calls and threatened with legal action to collect, all you want to know is when will debt collectors stop calling you?
There are time limits regarding what debt collection actions creditors can take, but it can be a complicated question to answer. It depends on what type of debt you’re worried about, the actions you take, and which actions you hope to stop.
We’re going to take a look at how debt becomes statute barred debt, what that means for you, and all of the options available to you for getting out of debt.
If you’re getting calls from debt collectors, we can help you create a plan for dealing with it. With the help of David Sklar & Associates’ debt professionals, you can learn more about your situation and the options you can pursue. In the meantime, here’s what you need to know about statute barred debt in Ontario.
What Is Statute Barred Debt?
Ontario collection laws put a limit on how long creditors have to pursue certain collection actions when you default on your debt payments. In Ontario, creditors only have two years from the date of the last charge, last payment or written acknowledgement of the debt to take legal collection actions.
The Statute of Limitations on debt collection in Ontario applies to specific collection actions that require the creditor to sue for a court judgment. These legal actions include:
Wage Garnishment: A court can order your employer to withhold part of your paycheque and pay it directly to your creditor instead of you. Creditors usually pursue this option if you do not have much in the way of savings.
Bank Account Garnishment: Alternatively, your creditor can get a court order that allows them to collect directly from your bank account. This may be used if you have savings but still refuse to pay back the debt.
Once there is a court judgment to garnish your wages, the only way to stop it is to either pay off the debt or file for bankruptcy or a consumer proposal.
Garnishment is an effective way to force collection from a debtor who has stopped paying, but it can also be an expensive legal proceeding to undertake. That’s why many creditors may not pursue this action right away. They may never take legal action if the amount you owe is too small to be worth the costs of legal action. However, collection agencies may use tactics to try to stop the statute from applying.
Statute Barred Debt and Your Credit Raiting
It is important to recognize that you still owe statute barred debt. It will be an ongoing mark on your credit history, and debt collection agencies may continue to call you. Negative information will remain on your credit history for 6 years in Canada, including missed payments.
The consequences of a poor credit history can include:
- You may experience a harder time when trying to rent an apartment;
- It may be more challenging to qualify for a mortgage, auto loan, or business loan;
- You may have to pay higher interest rates if you do qualify for such a loan, as you are a higher-risk borrower.
Even if it no longer appears on your credit history, you still owe the debt. Debt doesn’t disappear even if the Statute of Limitations applies to creditors’ collection options.
What Types of Debt Can Be Statute Barred?
The Statute of Limitations only applies to unsecured debts. Unsecured debts include:
- Credit cards
- Lines of credit
- Payday loans
- Student loans
- Utility bills
- Unpaid invoices (such as for the dentist or a veterinary hospital)
Tax debt
In Ontario, Canada, tax debt can become statute-barred, but this is subject to specific conditions under the Canada Revenue Agency (CRA) guidelines. The concept of tax debt becoming statute-barred relates to the period after which the CRA may no longer legally collect a debt. Generally, the CRA has a 10-year period to collect tax debts from the date they were assessed.
Here’s how it works:
- The limitation period starts from the date the CRA assesses your income tax, GST/HST, or other types of tax debt.
- The CRA can take collection actions such as garnishing wages or seizing assets within this 10-year period.
- Certain actions can restart the limitation period, such as acknowledging the debt in writing, making a payment, signing a payment agreement, or the CRA sending a collections letter or taking legal action against you.
If you believe that your tax debt might be close to or beyond this 10-year limitation period, it’s important to confirm the exact status with the CRA or consult a Licensed Insolvency Trustee to understand your specific situation and options.
Secured Debts
There are different rules for secured debts, which will not become statute barred. This is because creditors of secured debts have the means to collect secured debts when payments are missed by seizing the asset that secures the loan. That could mean foreclosing on your home, repossessing your car, or collecting the collateral that secures a business loan.
If the value of the repossessed property does not fully pay off the remaining debt, the remainder of the balance becomes unsecured debt. The creditor can continue to pursue collection efforts, including wage or bank account garnishment, but the debtor can likewise file for insolvency, and the Statute of Limitations can apply to this remainder.
When Is Debt Considered Statute Barred?
The Statute of Limitations applies to debt two years after your last charge, payment or written acknowledgement of the debt. The clock on the Statute of Limitations begins when you miss a payment. The two-year timeframe resets if you make another payment or acknowledge the debt before the two-year timeframe expires.
The Statute of Limitations applies to a debt permanently once the two-year period has expired with no payment or written acknowledgement of the debt. There are ways to re-age debt, and debt collectors will try to persuade you into giving them more time to collect. But once the statute of limitations period of two-years (in Ontario) has passed, the legal enforcement of the debt cannot be revived.
Debt collectors may try to convince you to make a token payment as a sign of good faith. This will reset the clock and open the door for them to take legal action if done within two-years from the last default, payment or written acknowledgement.
To obtain written acknowledgement of the debt, Collectors may try to convince you to send a letter or email explaining your financial circumstances and requesting more time to pay the debt.
If debt collectors are contacting you about an old debt, they may be attempting to reopen the window of opportunity for legal action. Before you respond to these calls, you should check your records to see when you last made a payment.
How do I Stop Collection Calls?
Debt collectors can continue to call you as long as you owe a debt. These calls are not included in the actions collectors can no longer take on statute-barred debt.
If a debt is statute-barred, in order to stop debt collectors from calling, you have a few options:
1. Pay back the debt in full;
2. Find a way to settle the debt; or,
3. Send a written communication to the creditor or collection agency stating that you dispute that you owe the debt and that they should take you to court.
If you are trying to finally clear statute-barred debt, talk to a Licensed Insolvency Trustee. They will review your financial situation and tell you more about the options available to you.
When should you reach out to a Licensed Insolvency Trustee?
Statute barred debt cannot be cleared in a consumer proposal or bankruptcy. Although these debts are protected from legal action and garnishment, debt collectors can still call you, and you still owe the money. That said there are protections afforded to debtors with statute barred debts and a Licensed Insolvency Trustee can meet with you and discuss these options with you.
If you’re getting collection calls for statute barred debt, or if you have other debts you would like to discuss it may be time to reach out to David Sklar & Associates.
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