by Mark Silverthorn
Comprehensive Debt Solutions
Did you find this article helpful?
If you found this article helpful then I would invite you to share it with your friends, acquaintances, and family members, and, if you think it is appropriate, provide me wth an endorsement or recommendation on my personal Linkedin Profile--found by searching under "mark silverthorn".
John Smith, a 22 year-old Ontario resident, has a Mastercard credit card with a $10,000 outstanding balance. His last payment to Mastercard was on February 28, 2013. After he started receiving collection calls from Mastercard he asked his parents to help him with this outstanding Mastercard debt. Starting on May 1, 2013, John Smith's parents made a $200 payment, via, personal cheque, direclty to the creditor on John's Mastercard on the 1st day of each month until they made their last payment on February 1, 2015.
Two different scenarios in which people take advantage of a limitation period
There are two distinct scenarios in which a person might find themself taking advantage of a limitation period. The difference between these two depends upon (1) if the person has stopped making payments on a particular unsecured consumer debt, and (2) if they have stopped making payments to their creditor, has sufficient time elapsed since the date of last payment so that they can take advantage of the expiry of a limitation period today.
People who are limitation period-ready: A person is "limitation period-ready" if sufficent time has already passed from the date of their last payment so that they are able to take advantage of the expiry of a limitation period today.
Pre-meditated limitation period stalkers: People whose unsecured consumer debts are not yet old enough to take advantage of the expiry of a limitation period who plan to conduct themselves in such a manner that they will some day be in a position to take advantage of the expiry of a limitation period.
Taking advantage of the expiry of a limitation period is a two-step process. Firstly, you need to stop making any payments with respect to a particular unsecured consumer debt. Secondly, you need to wait a sufficient period of time from the date of your last payment for the limitation period in your province to expire.
There is one additional distinction which should be made concerning the date of last payment. An example will help illustrate our point.
The key to understanding the concept of limitation periods is to think of limitation periods as a clock.
One of the key concepts in The Wolf At The Door is the "wait-and-see approach". It arises where a consumer stops making payments on one or more unsecured consumer debts and then waits for the expiry of a limitation period--which will occur unless the creditor sues the consumer.
You cannot take advantage of a limitation period to eliminate certain types of debt
Limitation periods will not be of any assistance to you to eliminate the following categories of debt:
Unless you live in Newfoundland, the fact that a limitation period has expired on your unsecured consumer debt does not prohibit your creditor, or its authorized collection agent, from making payment demands concerning your account.
Are collection calls illegal after a limitation period has expired?
It is common for consumers to complaint that they are getting collection calls after the expiry of a limitation period in their province.
These consumers are mistaken as to the consequences of the expiry of a limitation period. In the remainder of this section we are going to review under what circumstances collection calls are legally permitted in Canada after the expiry of a limitation period--and these comments are restricted to unsecured consumer debt. Accordingly, these observations do not apply to secured debt, monies owing to the government or non-dischargeable debt.
Newfoundland residents: Under the Newfoundland Limitations Act a debt is extinguished after the expiry of the province's 6-year limitation period for consumer debt. Accordingly, it would be illegal for a creditor or the creditor's authorized collection agent to make
collection calls to a consumer after the expiry of the province's 6-year limitation period.
Alberta residents: The Alberta Fair Trading Act prohibits collection agencies from calling Alberta residents to demand payment of an unsecured consumer debt in circumstances where the date of last payment is more than six years ago.
Canadian residents living outside of Alberta and Newfoundland: If you live outside of Newfoundland or Alberta then it is legal for your original creditor--or anyone who subsequently buys your outstanding account--to communicate with you for the purposes of demanding payment of an outstanding unsecured consumer debt.
It may, however, be possible for a consumer--regardless of the age of a debt--under provincial or federal law, to communicate with a bill collector in a prescribed fashion, after which it would be illegal for the bill collector to make collection calls to a consumer. This issue is dealt with in some detail in another FAQ--soon-to-be-published titled "How to Stop Collection Calls"
What are the consequences of the expiry of a limitation period?
The impact of the expiry of a limitation period varies depending upon the province in which you live.
Residents of Newfoundland:
If you live in Newfoundland and the province's 6-year limitation period has expired in connection with your unsecured consumer debt then the debt is extinguished. It is as if a fairy waived a magic wand and poof--the debt no longer exists.
Canadians living outside Newfoundland:
If, however, you live anywhere in Canada outside of Newfoundland, then the expiry of a limitation period merely gives the consumer an affirmative defence in the event that the consumer were to be sued with respect to the account.
If you live outside of Newfoundland there is nothing stopping your creditor, to whom you owe an unsecured consumer debt, from suing you after the expiry of a limitation period. If you then fail to file a defence with the court in which you plead the expiry of your province's provincial limitation period as a full and complete defence then your creditor could obtain a default judgment against you and them commence enforcement proceedings.
If, however, you live outside Newfoundland, you have an unsecured consumer debt, and your creditor commences a lawsuit against you after the expiry of the limitation period in your province, and you file a defence in which you plead the expiry of your province's limitation period as a complete defence then you will win the lawsuit. As a practical matter, creditors do not typically sue consumers after the expiry of a limitation period.
There are, however, some very unethical bill collectors who will sue consumers after the expiry of a limitation period and then mislead the courts into believing that you have been properly served with documents commencing a lawsuit, when in fact you never received the proper notice that a lawsuit has been commenced against you.
If, at some point after the clock on the statute of limitations begins to run--but before the limitation period would otherwise expire--a consumer makes a partial payment to a creditor, or the creditor's authorized collection agent, then the clock on the statute of limitations is restarted on the date of the partial payment. If more than one partial payment is made then the clock begins to run on the date of the most recent partial payment.
Furthermore, if, at some point after the clock on the limitation period begins to run--but before the limitation period would have otherwise expired--the consumer makes a written acknolwedgement of their indebtedness. In order to restart the clock on the limitation period then the consumer must acknowlege their indetdeness in writing. The fact that you were to admit to a blll collector over the telephone that you the money does not restart the clock on the statute of limitations.
If you have an unsecured consumer debt and your creditor does not commence a lawsuit against you before the expiry of the limitation period in your province then you have the option of simply not paying a penny to this creditor.
You might be surprised to learn that the statute of limitations on John Smith's Mastercard account expired on February 28, 2015--two years from the date of "his" last payment. The fact that John's parents made payments to Mastercard in connection with his Mastercard account do not count when it comes to determing the date of John's last payment. If, however, John's parents had given the $200 each month to John, and John had made payments to Mastercard himself--$200 a month on the first day of each month from May 1, 2013 to February 1, 2015, then the clock on the statute of limitations would not start until February 1, 2015!
There is a scenario where a consumer owes money to a creditor in circumstances where a consumer never made a single payment to the creditor in which case there is no date of last payment. In those circumstances where there is no date of last payment then the statute of limitations begins to run on the date when the consumer was first had a legal obligation to make a payment. This date would typically be determined by looking at the contractual agreement between the parties.
With few exceptions, the clock on the statute of limitations begins to run on the date of your last payment to your creditor.
Think of a limitation period as a clock
In order for you to understand the concept of a limitation period it is very helpful to think of it as a clock.
Why do we have limitation periods in this country?
The purpose of limitation periods is to create certainty in the marketplace. A provincial limitation period puts pressure on a creditor wishing to sue someone owing them money to commence a lawsuit against that person--sooner as opposed to later. The shorter the limitation period, the greater the pressure on a creditor.
How long is a limitation period?
The relevant limitation period for you is the province in which you live. In the context of unsecured consumer debt, limitation periods can be summarized as follows:
2-year limitation period: British Columbia, Alberta, Sasktachewan, Ontario and New Brunswick
3-year limitation period: Quebec
6-year limitationn period: Manitoba, Nova Scotia, Newfoundland, PEI, and the three territories
One of the reasons why Canadians are ignorant about limitation periods is because--for many of the people who provide goods or services to Canadians experiencing debt problems--it would simply be bad for business to share this information with consumers!
Most Canadians are uninformed about limitation periods
I have identified two key reasons why most Canadians are ignorant about limitation periods as it relates to unsecured consumer debt. Firslty, the level of financial literacy in this country is a national disgrace. The second reason is more troubling. Many of the people who earn a living providing goods or services to consumers experiencing debt problems have a conflict of interest when it comes to educating consumers about limitation periods.
If you want to obtain more details about the different categories of debt there are then you can visit the article in FAQs titled "What are the different types of debt and why are these distinctions important?"
Consumer restarting the clock on a limitation period
Once the clock has started to run on a limitation period there are two things that a consumer can do--so long as the conduct takes place before the expiry of a limitation period--to restart the clock on a limitation period.
Why are limitation periods important?
There are two ways in which a limitation period might help you eliminate your debt. Firstly, you might be able to avoid paying a penny to a particular creditor to whom you owe an unsecured consumer account because of the expiry of a limitation period in your province. Secondly, if you live in a province with a short limitation period--2 years in British Columbia, Alberta, Saskatchewan, Ontario and New Brunswick, and 3 years in Quebec--then your creditor might be much more motivated to negotiate a very favourable one-time lump sum payment as settlement in full of your outstanding debt after the relevant limitation period has expired.
Mark Silverthorn, Founder of Comprehensive Debt Solutions Inc., was photographed as he wrote his article on limitation periods in Canada--an article many organizations in this country would prefer that Canadian consumers do not read. Photo courtesy of Emilie van Gent.
If you are experiencing problems paying your unsecured consumer debt--credit cards, some, but not all, personal loans, lines of credit, and most monies owing to utilities such as cellphone, cable television and internet service providers--then a statute of limitation might be your best friend. In some cases taking advantage of a limitation period might enable you to avoid paying thousands of dollars to your creditors without going bankrupt.
Uniquely qualified to write about this topic
I am uniquely qualified to write an article about how consumers can take advantage of limitation periods to eliminate their debt, and potentially save thousands of dollars, and in some cases, tens of thousands of dollars in the process. Over a twelve year period--between 1994 and 2006-- I worked as a collection lawyer in the Greater Toronto Area for four of the ten largest collection agencies operating in Canada. At some of these collection agencies I managed their Legal Department. In 2006 I made the decision not to do any more collection work and I began representing consumers experiencing challenges with their unsecured consumer debt.
Between 2006 and 2013, I personally negotiated hundreds of settlements on behalf of Canadians in circumstances where consumers made a one-time lump sum payment as settlement in full of an outstanding account, sometimes for as little as 10 to 20 cents on the dollar. Furthermore, I spent two years writing a book titled The Wolf At The Door: What To Do When Collection Agencies Come Calling (2010), published by McClelland & Stewart..
How Can a Canadian Take Advantage of a Limitation Period
to Avoid Paying a Debt?