Many questions often arise about the age of a debt, and what can be done, especially when it comes to bad debt write-off, collections, the credit bureau, or legal action. Each Province has its own statute of limitation on legal action. These vary from province to province.
This week, we will look at British Columbia.
The Limitations Act
The Limitations Act details what the limitation is on claiming funds owed. This allows a period of six years for undertaking legal action from the delinquency or acknowledgement of the debt. This law is available online at the following location:
UPDATE: The British Columbia government has announced that as of June 1, 2013, their new Limitation Act comes into effect. The basic limitation period for civil claims will be two years going forward, dating from “discovery of the claim”. An ultimate limitation period of 15 years will be in place as well. Any claims with debts incurred prior to June 1, 2013 may still fall under the old Limitation Act. Discovery has it’s own interesting terminology, and is not as simple as the language of some other provinces.
In British Columbia, a judgment is valid for ten years, as per their Limitations Act (linked above). A judgment for possession of land, a debt owed from collateral, or other very specific circumstances, the Limitations Act states there is no limit to recourse, and is laid out within the law.
The Credit Bureau
Notwithstanding legal action, there is a separate limitation enforced by provincial law on what can be placed on the credit bureau.
The Limitation of a non-secured debt is addressed in Section 3 (5) of the BC Limitation Act, and sets six years as the limit for debt. As with other provinces, the Limitations Act states with acknowledgement of the right of the creditor, or a partial payment, the time limit is reset.
In British Columbia that other law that governs reporting to the credit bureau is the Personal Information Protection Act:
Often creditors will continue to pursue a debtor on a debt older than six years. However, the creditor, debt buyer, or collection agency representing them generally has no legal recourse if the debtor refuses to pay. Many collection agencies seek to pursue on older debt, but this is a gray area that should be entered into carefully by both third parties and creditors.
Bad Debt Write Off
When a company writes off accounts receivable amounts, it has no impact on whether it can be pursued or not. Small businesses often think it prevents them from collecting the account in the future, which is false – there is merely some bookkeeping to be done to account for the loss, and later recovery. If a debt has been written off, it is simply no longer counted on the balance sheet of the company as accounts receivable, which is an asset. The bad debt write-off removes it from accounts receivable. Should the funds be later recovered, it can be reflected as income upon remittance. For a complete explanation, consult with your accountant.
There is a special exception to student loans. As of July 8, 2008, Section 178 of the Canadian Bankruptcy and Insolvency Act was changed that affected all provinces, and states that student loans will not be discharged or forgiven through bankruptcy unless they file at least seven years from the date they ceased to be a part-time or full time student, unless they are granted a special exception by the Supreme Court in Bankruptcy. There are a number of fine details to the rules surrounding student loans, and would be a complex subject to be fully addressed in a separate blog article.
I believe that the older a debt is, the smaller the chances are of recovery. If I were to advise a creditor on the most effective time frame for collections, it would be up to four years old. Either legal action, or the pending action of listing on the credit bureau, or the after-effects of having reported the item to the credit bureau are greatest in this time frame. Depending on the age of the account, and what action has occurred prior to that date to recover the file, a reasonable expectation of liquidation can be set.
As always, if you have any questions regarding the pursuit of receivables, and the legal recourse of the creditor to secure their debts, you are certainly welcome to contact myself.
Kingston Data and Credit
Kingston Data and Credit