Did You Know? There Is A Statute of Limitations for Debt

One of the biggest surprises you can get when you spend years avoiding collections calls, is that one day the calls may suddenly stop. Perhaps it’s an old cable bill or maybe the first credit card you’d ever gotten and were a little bit undisciplined with. You knew, in the back of your mind, that you still owed that debt from your credit card, but the phone has gone quiet! There are no more calls from “Don’t Answer”, your alias for those collections calls. Why?

To put it simply, it’s because each province in Canada has its own statute of limitations on debt. That means that after a certain period of time, lenders you owe can no longer come after you in a court of law for the money. Here is a breakdown for each province:

Alberta – 2-10 years

British Columbia – 2 years

Manitoba – 6 years

New Brunswick – 6 years

Newfoundland and Labrador – 2 years

Nova Scotia – 6 years

NWT – 6 years

Nunavut – 6 years

Ontario – 2-6 years

P.E.I. – 6 years

Quebec – 3 years

Saskatchewan – 2 years

Yukon – 6 years

Nationwide – 6 years

While there are exceptions, loopholes, and grey areas when it comes to these rules, for the most part, once 6 years is up in Canada, debtors can no longer try to sue you for what you owe.

Sounds like all you have to do is wait it out, right? Then you’re debt free! Well… not quite. This is not an alternative route to becoming debt free. The problem is that the statute of limitations doesn’t mean the debt is erased from your credit history nor that the lender has to stop bugging you for the money. It’s true that after six years, the debt should no longer be listed as owing on your credit report, but the damage will likely have already been done. Having a defaulted debt on your credit report for the six years prior has likely brought your credit score down so low that the struggle to get it back up is going to be gruelling. This is going to limit the ways to build credit available to you. While many debtors will eventually give up on pestering you for the cash, it doesn’t mean that they have to stop. They can, if they so desire, come after you for the money by phone or mail, for as long you are alive. So, technically, you're not debt free, and you're not even consequence free. You've still got to find a way to clean up that mark on your credit report.

So, while you’re not going to have to see that credit card debt on your credit report again, its effects will haunt you for a long time. The ways to build credit will be limited for you.  It is much better to find a way to pay down the debts you owe than it is to ride out the statute of limitations. That is the best way to become debt free and the best among all the ways to build credit.

New study indicate Canadians are decreasing their debt load

Here’s a surprising fact: the majority of consumers in Canada are now decreasing their debt load, according to a study by the credit bureau, Equifax. What’s more, the average Canadian is paying off their credit cards in full every month. It’s a positive trend and great to see, however, those who are not decreasing their debt, are adding to it enormously. These people accumulating more debt tend to be people who fall into higher income brackets, taking on more debt because they can afford it.

What are they going into debt for? The report says all kinds of things - because they have the extra means, they're spending more on houses, cars, televisions, you name it. There are a vast number of Canadians who are decreasing their debts, but the ones who are increasing their debts are taking it on at a rate that is pushing the average up for Canada as a whole.

While most Canadians are bringing their debts down, people with better paid jobs and higher income are increasing their debts and doing so rapidly. This trend has been observed taking place in the third quarter of 2016, and will likely only get worse with the holiday season.

So, what can we take away from this? Well, there are a few things.

1. Spend your income wisely

Getting a better job or more income doesn’t mean you should be spending more. Taking on more debt just because right now you can afford to make the payments each month isn’t a good enough reason. Is your work seasonal? Will you always be making this kind of money? Do you have a nest egg tucked away for emergencies? Consider what you truly cannot live without and opt for saving instead.

2. Don't make excuses for the holidays

The second thing we need to consider when it comes to this new data is that it’s really easy to sink deeper into debt over the holiday season. It’s pretty easy to use Christmas and gift-giving as an excuse to reverse any progress you’ve made bringing your debts down over the course of the year. During the holidays, more than ever, it’s important to budget, plan and save, because you never know what could be coming around the corner.

3. Your income does not equal your credit score

The third thing we can take away from this new study by Equifax is that there is now more evidence than ever that a great income and a great job don’t necessarily mean a better credit score. Your score, instead, depends on how you use your income to pay down your debts, like we talked about here. Rich people can be worse with debt than average income earning people. Way worse.

So, while overall the trend in Canada is positive, with most of us bringing our debts down, there are still warning signs we definitely need to think about, especially if you’ve seen your income increase during the past year. Keep up your good habits no matter how much you make, and the rest will take care of itself.

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