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.
As the next article in our series, we will address the province of Ontario.
The Limitations Act of Ontario
In Ontario, the statute of limitations is two years for initiating legal action in most cases, having been revised from seven years with the revision enacted as of 2004. The limitation period runs from “the day the claim is discovered or ought to have been discovered”.
The Limitations Act, 2002 (enacted January 1, 2004) was brought into place and was a major revision, in an attempt to unify the various separate laws that addressed limitations on actions, and impacted several other provincial statutes.
The latest version of the Limitations Act can be found here:
The limitation period can be suspended in certain circumstances such as the creditor or claimant being incapacitated, a minor, or a period that the debtor or defendant willfully concealed facts or misled the creditor. Please review the Act for details.
As well, acknowledgements of liability in writing or a payment on the principal or interest owed also can reset the two-year limitation period.
While there are extenuating circumstances that suspend the limitation period of a debt, there is an ultimate limitation period of fifteen years, that prevents any legal proceeding.
There are of course, exceptions to the Limitations Act, and we suggest referring to the Real Property Limitations Act, Family Law Act, Arbitration Act, matters involving outstanding judgments, fines, taxes, student loans, environmental claims, and the other specific points laid out in the Limitations Act itself.
The Credit Bureau
For matters involving reporting to the credit bureau, please refer to the Consumer Reporting Act. It can be found here:
This act outlines what can be listed on a consumer’s credit report. It states the kind of information that is allowed, and the length of time it may appear.
Judgements can appear for seven years on the credit report, unless the plaintiff or creditor confirms the judgment remains unpaid.
Non-judgment debts may be listed for seven years from the period of the debt being incurred, or the last payment made.
The Real Effects of the Statute of Limitations in Ontario
We have seen the evolution of the credit and collections community over the last twenty-odd years, and with the change of the Limitations Act, the rules surrounding small claims court actions in Ontario, and the ever-increasing role of the credit bureau by creditors for screening customers, the landscape of the collection industry has changed greatly over time in this province.
In this current day, the credit bureau has become far more prevalent a tool by creditors, and thus negative ratings on the credit bureau, registered items, bankruptcies, or even hard inquiries carry more authority and consequence for consumers. If a consumer attempts to apply for credit, rent a new property or apartment, open a bank account, apply for service such as hydro, telephone service, or other commonplace requests to extend credit, a marred bureau file may prevent credit or service from being granted.
The limitation for legal action of two years, with the increase of allowance of small claims court actions from $10,000 to $25,000 has created a more aggressive legal community for securing judgment on amounts owed, a more formal legal industry of paralegals and lawyers around “the people’s court”, and increased reliance for credit reporting as a consequence for smaller or older debts.
With the option for legal action being restricted, this has given a rise to “debt settlement” service industry, and creditors who are more willing to accept a lump sum settlement to forgive the balance of debt. While consumers can make the offer to settle on their own, many are not aware of precautions to take to prevent the balance being owed, or are not sure how to present an offer to resolve the account – some settlement service providers have proven to fulfil a growing need and opportunity in Ontario, while others have run roughshod over consumers, likely resulting in regulation of this industry in the coming years.
There are also creditors, debt-buyers, and collection vendors that continue to pursue statute-barred debts. Ultimately these debts have little consequence for non-payment (unless a partial payment or written acknowledgement of the debt resets the limitation period), but still represent an active segment of the credit cycle.
All these different factors contribute to a shifting credit and collection environment, and these changes are likely to continue for some time. It is important that creditors and their collection vendors evaluate older or entrenched credit and collection practices to make sure they are up to date and relevant.
It is my personal opinion that in third party collections, while legal action is imperative on a segment of creditor receivables, credit reporting of outstanding debts provides far more leverage and results in higher collection results now, if used properly. Obviously when interacting with Trans Union or Equifax, a certain amount of technical expertise is necessary, not only to export data and interface with the credit bureau databases, but to set a proper reporting strategy and flag which files should be reported to the credit bureau, and under distinct time-frames set on the behaviour of the file.
As always, if you have any questions regarding credit reporting, legal actions, consumer obligations, or the statute of limitations, you are certainly welcome to contact myself.
Kingston Data and Credit
Kingston Data and Credit