With the cost of living on the rise, there are more individuals facing debt and debt collectors. You may be wondering if your debt can expire. The answer is not exactly.
It is important to know your rights and responsibilities regarding debt collection in Ontario to protect yourself and dispute claims if necessary. Navigating debt collection can be stressful and time-consuming; however, a lawyer can help you through this process. Keep reading to explore the laws that govern debt collection in Ontario, how long debt can be collected in Ontario, how these apply to you, and what you can do if you are dealing with debt.
What is debt collection?
Debt collection is the process where creditors or collection agencies seek debt repayment from individuals or businesses that have failed to repay their financial obligations. In debt collection, the goal for creditors is to recover funds and uphold the credit system. This means that they may take legal action, such as a lawsuit, to pursue a claim. However, in Ontario, to protect debtors and ensure fair treatment, the Limitation Act, 2002 and Collection and Debt Settlement Services Act, 1990, both outline laws that govern debt collection.
How long can debt be collected in Ontario?
The Limitation Act, of 2002 sets out the timeframe for debt collection in Ontario. Here is a closer look at the important elements of the act and how they impact the length of time your debt can be collected in Ontario.
Basic Limitation Period
The basic limitation period is the amount of time creditors can initiate legal proceedings against debtors. The purpose of the limitation period is to prevent the indefinite threat of lawsuits or legal proceedings against debtors. In Ontario, the basic period is two years for creditors to initiate legal proceedings for debt collection. This period starts when the debt becomes “discoverable,” which is typically when the debtor defaults on their payment obligation.
Discoverability of Debt
The concept of discoverability is crucial because it dictates the beginning of the basic limitation period. A debt is considered discoverable when the debtor knows or should have known of the default. This is not always the date of the first missed payment. Discoverability also includes what a reasonable person in the debtor’s position would have known. It accounts for when the debtor becomes aware or should have become aware that a payment was missed or an obligation was not met. Discoverability also involves the debtor’s awareness that the debt is due and that a creditor can make a legal claim against them.
Tolling and Extending the Limitation Period
Certain actions can toll or extend the limitation period. Tolling refers to the temporary halting or suspension of the limitation period under certain circumstances, extending the time a creditor has to take legal action against the debtor. This can occur for many reasons, such as the debtor’s absence from the jurisdiction, a pending legal decision that affects the claim, or an agreement between the creditor and the debtor to suspend the limitation period. The limitation period may restart if you acknowledge the debt or make a partial repayment of the debt.
What happens after the limitation period expires?
There is a common misconception that after the limitation period expires, the debt is erased. This is not the case. However, after the limitation expires, it does limit the legal options available to the creditor. If a creditor files a lawsuit after the limitation period, the debtor may be able to use the expired period as a defence. This does not mean that the claim will be forgiven.
It is important to contact a lawyer as soon as possible so that we can discuss your case and take action as quickly as possible.
Debt Collection Practices in Ontario
In Ontario, debt collection practices are also governed by the Collection and Debt Settlement Services Act. This Act sets standards for how debts can be collected and governs debt collection agencies. The purpose of the act is to balance the need for creditors to receive repayment and the rights of privacy and freedom for debtors. So, how does the Collection and Debt Settlement Services Act impact how long debt can be collected in Ontario? This act does not directly impact how long debt can be collected; however, it does indirectly impact it.
Times when debt collectors can contact debtors
While not directly impacting the time frame for debt collection, the act limits and regulates when debt collectors can contact debtors, impacting the efficiency of their communications. The act sets rules around prohibited practices such as harassment or misrepresentation by creditors. It also requires debt collectors to provide detailed information about the debt.
The act restricts the hours debt collectors can contact debtors to prevent contact at odd hours, such as late at night or early in the morning. It also limits contact during weekends or publicly recognized holidays.
Acknowledgment of Debt
After the limitation period expires, an acknowledgement of debt is critical for the creditor to reset the limitation period. This means that if these conditions are met, the limitation period that had expired will be reset beyond the original two-year period. Acknowledgment of debt can occur through:
- A debtor making partial payments.
- Written acknowledgments signed by the debtor.
- Any admission of the debt during communication with the creditor.
It is important to consult with a lawyer prior to any communication with debt collectors to ensure that you are meeting all of your obligations under the law while also protecting your rights under the Limitations Act.
Credit Reporting and Debt Collection
The expiry of the limitation period does not prevent a debt from being reported to credit bureaus. This means that despite the expiry of your limitation period, your claim will remain on your credit report. Your debts can stay on your credit report for a certain period of time, typically 6-7 years, impacting your credit score and preventing you from getting approvals for things such as car loans, apartments and more.
Legal Proceedings for Debt Collection
Legal proceedings for debt collection are initiated by the creditor to recover the debt through the legal system. They must follow a specific process; however, often, prior to legal proceedings, a creditor will attempt to collect the debt through mediation or out-of-court proceedings. The process for legal proceedings is as follows:
- Filing a Claim: The creditor files a claim in court within the limitation period.
- Serving the Claim: The debtor must be served with the legal documents within the limitation period.
- Debtor’s Response: The debtor can file a defense, including the expiry of the limitation period.
- Court Proceedings: If the matter goes to trial, the court will determine the validity of the claim and the defense.
Throughout this entire process, it is important to consult with an experienced lawyer who can help you navigate communications and legal proceedings.
Debt Collection Agencies
In Ontario, many creditors use debt collection agencies to recover owed funds. These agencies must comply with provincial laws regarding debt collection practices. These are outlined in the Collection and Debt Settlement Services Act, 1990.
Consumer Rights and Protections
Debtors in Ontario have certain rights and protections, such as:
- The right to receive a written notice before a collection agency starts contacting them.
- Protection against unfair practices by creditors and collection agencies.
- The right to file a complaint against a collection agency if they violate the law.
It is important if you are contacted by a debt collection agency or creditor to consult with a lawyer.
Understanding the laws surrounding debt collection in Ontario is crucial for both creditors and debtors. The Limitation Act, 2002, sets a basic two-year period for collecting debts, however, there are exceptions that may extend the limitation period. Both creditors and debtors need to be aware of their rights and responsibilities. If you are dealing with a debt, contact Epstein and Associates for your free consultation.
This blog is made available by the law firm publisher, Epstein & Associates, for educational purposes. It provides general information and a general understanding of the law but does not provide specific legal advice. Any specific questions about your legal concerns please contact us now and speak to an expert today.