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 will have 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.Let’s Talk
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, and the maximum limitation period before debt becomes statute barred debt in Canada is six years from the date of their last payment.
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 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, which they can as soon as you default. 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 anyway.
You Still Owe Statute Barred Debt in Canada
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
- Tax debt
- Utility bills
- Unpaid invoices (such as for the dentist or a veterinary hospital)
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 collecting 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 Statute Debt 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 them, 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 to Stop Collection Calls and Get Out of Debt for Good
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.
In order to stop debt collectors from calling, you will have to pay back the debt in full or find a way to settle the debt. That said, before you make a payment on statute barred debt, you should be confident that you can pay it all back, or else you may find yourself facing wage garnishment or bank account garnishment that the creditor may not have been able to pursue otherwise.
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.
This is a process that could work depending on the size and nature of your debts, though it is one that should be entered with caution. Here’s how debt settlement works in Canada: you hire a debt settlement company to negotiate on your behalf with your creditors, and they try to get you relief on interest rates or even reduce the principal you owe.
However, your creditors are under no obligation to negotiate. Where things can become problematic is that many debt settlement companies will encourage you to stop paying your creditors and instead put that money in a fund they can later use to create a lump sum payment as a counter-offer.
In the meantime, unless you owe statute barred debt, your creditors can pursue legal actions such as wage garnishment, bank account garnishment, and collection calls. You do not enjoy any legal protections when working with a debt settlement company.
Before agreeing to work with a debt settlement company, beware of high-pressure sales tactics and unrealistic promises, such as:
- Stopping collection calls;
- Guaranteeing a large reduction in your debts;
- Promising your creditors will participate;
- Promising your creditors will not garnish your wages or bank account;
- Promising they can handle government-regulated insolvency processes such as a consumer proposal or bankruptcy.
Under the Collection and Debt Settlement Services Act, you have a 10-day grace period after signing up with a debt settlement company to back out of the agreement. If you’re trying to deal with statute barred debt in Ontario, there may be a better way forward.
Work with a Licensed Insolvency Trustee on Insolvency
Only a Licensed Insolvency Trustee can work with you on government-regulated insolvency, which includes consumer proposals and bankruptcy. Filing a bankruptcy or consumer proposal will legally protect you from collection actions, stop collection calls, stop interest charges from accumulating on your debt, and will often lead to a reduction in the amount you have to pay.
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. There are protections afforded to debtors with statute barred debts and a Licensed Insolvency Trustee can meet with you and discuss these processes with you.
Collection calls stop with a consumer proposal as soon as it is filed. They may resume if the majority of your creditors reject the proposal, but they will stop right away. Should your proposal be accepted, none of the creditors included in the proposal should continue collection calls as long as you uphold your end of the agreement and make the agreed-upon monthly payments.
If you’re getting collection calls for statute barred debt, or if you’re ready to discuss your rights regarding statute barred debt and get a fresh financial start, it may be time to discuss your debts with a free consultation at David Sklar & Associates.