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Does debt "expire?"

By Kristen Frisa and Vanessa Santilli

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If you've been in debt for a while, you may wonder how long it will mar your record. Is it possible for your debt to "expire?"

The answer: yes, but only in terms of court action.

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"There is a legal limitation from the date of last payment or acknowledgment of the debt by the debtor beyond which the creditor can no longer take legal action or sue the debtor in order to collect on the debt," says Henrietta Ross, CEO and executive director of the Canadian Association of Credit Counselling Services.

The limitation on debt varies by province. In Alberta, British Columbia, Ontario, Nova Scotia, Saskatchewan and New Brunswick, it's two years. In Quebec, it's three years, and elsewhere in Canada it's six years.

If you plan to let the clock run out on your debt so you don't have to pay your bills, you should consider all you stand to lose if your creditor decides to sue. If a creditor is successful in a lawsuit against you during the statute of limitations, your possessions can be taken or your wages docked to recover the amount owed.

Once the statute of limitations has passed, a creditor can't file lawsuit to collect on your debt. But that doesn't mean you're off the hook.

While the statute of limitations is a defence against legal action, it does not eliminate the debt, says Andy Fisher, a partner with A. Farber & Partners Inc., a firm that provides bankruptcy and consumer proposals.

"The creditors can continue collections indefinitely," says Fisher.

"Collection agencies get paid a commission based on what the debtor pays," he says. "It's in their best interest to continue harassing people in order to collect money from them."

The only way to end the harassing phone calls is to eliminate the debt by paying it in full or filing a consumer proposal or a bankruptcy.

Re-aging debt
You also need to be careful not to make a payment after the statute of limitations has ended. This is called re-aging debt.

If, for example, you hit the 10-year mark and decide to make a payment, this will re-start the clock in terms of the time frame that allows creditors to take legal action, says Fisher.

"Even $1 starts the period again," he says.

The credit bureau will report the debt for six years after the last payment, he adds.

Simple, but not always easy, debt solution
When it comes to owing money, the best solution is the obvious one: Don't put off paying down your debt.

"This is a way of ignoring your issues and problems," says Jay Harris, president at Harris & Partners Inc. Licensed Insolvency Trustees.

Tamara Kelly, director of education at Credit Counselling Services of Atlantic Canada Inc., cites your debt's potential damage to your credit report.

"Having a collection on your credit report can negatively affect your credit score," says Kelly. "Depending on the lender, you may be charged higher interest rates, or they may not lend to you at all."

If your outstanding debt is to a bank, the bank will have record of that debt and may not lend to you, even after your credit report no longer shows it.

There also are more personal reasons to face your debt head-on. Kelly says worrying about creditors each time your phone rings is a stressor that may never go away.

If you're considering your options for getting rid of debt, she suggests speaking with a professional.

"You're getting that perspective to see what the options are, what the consequences are," she says. "There are other options to do with your debt, than to just leave it."

Kelly says credit counsellors can help you figure out the underlying reasons for your debt, too.

"You want to get things in order so that you're not doing this again in five or seven years," she says.

If it's not possible to pay the money you owe right away, explain why to the debt collector and offer an alternate method of payment the Financial Consumer Agency of Canada suggests. "For example, you could offer to make two or three payments that add up to the amount owed or make a series of monthly payments until the debt is paid off," the agency's website advises.

Here are some other tips from the FCAC:

  • Don't send cash to a collector.
  • Always make sure you get a receipt for any payment you make.
  • Only deal with the debt collector who has contacted you to make payments. If it's a collection agency, don't contact the original creditor, as this might increase confusion.

Keep in mind you may be contacted by a debt collector who works for a company other than the one you owe. If that happens, your creditor has either hired a debt collection agency to get the money back on its behalf or has sold your debt to this debt collection agency.

See related: Bankruptcy lite: When a consumer proposal is a better option, Author Q&A: What to do about “Crushing Debt”


Updated: May 26, 2017