If you have old credit card or bank debt that has been sent to collections you may or may not need to file bankruptcy to deal with that debt.
Debts do have a statute of limitations. Both the federal government and provinces have legislation that limits how long a creditor can collect on old debt. In Ontario, the appropriate act is called the Ontario Limitations Act.
Section 4 of the Ontario Limitations Act states that:
4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.
In simple terms, a creditor is required to commence legal action against you within two years. This two year period is generally acknowledged to be two years from the date you stopped making payments on the debt. If you defaulted on your debt before January 1, 2004 however, your creditor has six years to make a claim for payment.
Some other things you should know:
- The limitation period starts over if you, as the debtor, make even a partial payment towards that debt.
- You still owe the debt, and the debt may still appear on your credit report. So while the credit can’t collect, it can impact your ability to borrow more money.
- Just because the creditor can’t sue you, does not mean the collection calls will stop. Old debts are often resold and these agencies will continue to call to see if they can collect even a small amount from you to settle the debt.
- Certain debts, like taxes, government guaranteed student loans, and debts for child support are not subject to the two year limitation period.
If your debts are over two years old you could simply choose to do nothing, and wait to see. If you have other debts, you could consider bankruptcy or a consumer proposal.