Mark explains how the passage of time and the expiry of a limitation period can let Canadians avoid paying certain debts, which debts qualify, when the clock starts, and what restarts it.
Transcript
Every day in this country, hundreds of thousands of Canadians make payments on unpaid accounts that they do not have to make. The reason they do not have to make these payments is the passage of time and the expiry of a limitation period. Provincial governments have enacted laws known as statutes of limitations. Essentially, their purpose is to force creditors to sue debtors within a certain period of time, after which the debtors acquire a good defense. What the government is trying to do is create some certainty in the marketplace by forcing creditors to sue debtors within a certain period of time, somewhere between two and six years.
Which debts qualify
Most Canadians don't know that it is possible to avoid paying certain types of debts due to the passage of time. It's not all debts, so let's canvass those that a person cannot avoid paying. These include money owing to the government: a traffic ticket, income tax, GST, or student loans owing to the government. Similarly, outstanding child support or spousal support are not debts that a person can avoid paying due to the passage of time.
The category of debts that a person can avoid due to the passage of time is what I would call unsecured consumer debt. Consumer debt is debt arising from a consumer transaction. Some examples would be a cell phone bill, a cable service or telephone bill, most credit cards, personal loans and lines of credit.
How long is the limitation period?
The key factor is the province in which a person lives. Each province and territory in Canada has a law that is known as a statute of limitations, though it may have different names. The majority of Canadians live in a jurisdiction where the statute of limitations is two years. In Quebec it is three years, and in a few provinces it is six years, including Manitoba, the three territories and a few of the Maritime provinces.
When does the clock begin to run on a limitation period? That's not an easy question to answer, but I think the best rule of thumb is that sometime in the six-month period after a consumer's date of last payment on an account, the clock on the statute of limitations begins to run. If you're trying to understand the statute of limitations, it's very helpful to think of a limitation period as a clock. It's important to know when the clock begins to run, when it stops running, and whether anything could restart it.
What restarts the clock
There are two things a consumer can do to restart the clock on a limitation period. The first is to make a written acknowledgement of the debt to the creditor or the creditor's collection agent. It's important that this acknowledgement be in writing. For example, if a collector at a collection agency calls the consumer and the consumer says, geez, I know I owe this debt but I just don't have the money, that's an oral statement, not a written statement, so it does not restart the clock. However, if the consumer sent an email or a letter to the creditor or the collection agent indicating that they acknowledged owing the debt, then that written statement would restart the clock.
The second thing a consumer can do to restart the clock is make a partial payment. Any time a consumer makes a payment on an account, it will restart the clock on a limitation period. There is one exception, and it applies to both the written acknowledgement of the debt and a partial payment: if the limitation period on a debt has already expired, it is not possible to restart the clock.
The COVID-19 pandemic
At the height of the COVID-19 pandemic, and we're pretty well talking about the 2020 calendar year, some but not all provinces passed laws that essentially paused the running of the clock on limitation periods in their province. If an individual wants to know exactly when a limitation period was paused in their province due to COVID-19, then I would recommend that they speak with a civil litigation lawyer who practices law in their province.
What happens when a limitation period expires
When a limitation period expires, an unpaid account does not go poof and magically disappear. The debt still exists. However, the expiry of a limitation period is important because it provides the consumer with a defense. If the consumer is sued after the expiry of a limitation period, the consumer can file a timely defense and plead the expiry of their province's statute of limitations as a full and complete defense, and under those circumstances the consumer would be successful.
On the other hand, if a creditor sues a consumer after the expiry of a limitation period and the consumer does not file a timely defense and plead the expiry, the creditor would obtain a default judgment against the consumer. So even if a limitation period has expired, a consumer must be on guard in the event that they are sued by a creditor. As a practical matter, creditors rarely sue consumers after the expiry of a limitation period.
I am a former collection agency lawyer, and I am now the founder of a firm called Debt Coach Silverthorn. There are all kinds of articles and YouTube videos that are helpful to consumers struggling with debt.