Understanding Statute-Barred Debts and Your Rights as a Debtor

Many Canadians struggle with long-overdue debts, often unsure if creditors will even come to collect. The confusion stems from statute-barred debts, or debts that have passed their legal limitation period. This article outlines how limitation periods work, their role in insolvency proceedings, and the alternatives available under Canada’s Bankruptcy and Insolvency Act (BIA).

What Are Statute-Barred Debts?

Statute-barred debts are debts that cannot be pursued further by creditors in court because the statute of limitations on debt has expired. Even though the debt exists, debt collection laws prohibit creditors from obtaining a judgment against you.

The timing conditions on statute-barred debt vary by province, ranging from two years to six years. Beyond that, creditors can still contact you, but they can no longer sue you. As an example, if you fell behind on a credit card in 2020 and your province has a two-year limitation period, the debt is now statute-barred as of 2022.

Limitations depend on acknowledgement and discoverability. So in our example, if you paid even a small amount in 2021, the clock is reset. Time periods also depend on the type of actions taken, like recovery of money vs the recovery of land, alongside other extra-provincial judgements.

CRA Debts and Limitation Periods

The Canada Revenue Agency (CRA) has regulations as well when it comes to tax debt collection. The CRA can recover a debt either six or ten years after the start of the period of limitation. When the period of limitation starts and the timeline length depends upon what kind of debt is owed. For example, the payment period for paying income tax debt is not the same as for other debts.

If you owe taxes and cannot pay, a Consumer Proposal or personal Bankruptcy may be the best way to settle the debt. You should discuss these options with a Licensed Insolvency Trustee and put a stop to CRA collection actions.

Are Statute-Barred Debts Included in Insolvency Proceedings?

Statute-barred claims are generally not a provable claim in Bankruptcy under the Bankruptcy and Insolvency Act (BIA). That is to say, if a creditor is no longer able to sue you legally for a debt, they would normally be precluded from claiming against your estate in Bankruptcy or in a Consumer Proposal. Take note that certain debts, like child support, follow unique rules beyond normal limitation periods. This is why it is important to seek advice from a Licensed Insolvency Trustee (LIT). They can confirm which debts are within and which are outside in your case.

The Role of a Licensed Insolvency Trustee

If you’re overwhelmed by debts—old or new—your initial step should be to speak with a Licensed Insolvency Trustee. An LIT is a professional approved by the Bankruptcy and Insolvency Act who can offer Bankruptcies and Consumer Proposals. In your first consultation, they can review whether your debts are statute-barred and advise you on your consumer rights under Canadian debt collection law. They will also explore alternatives, such as a Consumer Proposal or Bankruptcy, to provide you with a fresh start if your debts are indeed enforceable.

Consumer Proposals vs. Bankruptcy: Which is the Best for You?

Even with statute-barred debts, you may still consider insolvency options. Here’s how a Consumer Proposal and Bankruptcy compare.

Consumer Proposal:

• Negotiate with creditors to pay part of your debts.
• Stop collection calls and suits against you.
• Keep assets like your home or car.
• Applies to enforceable debts and

Personal Bankruptcy:

• Eliminates most debts you cannot pay.
• Provides immediate legal protection from creditors.
• May require surrendering some assets, depending on exemptions.
• Excludes most statute-barred claims depending on provability.

Protecting Your Consumer Rights

If called upon to pay a debt that you have not had to confront in years, here are the steps you should take:

1. Ask when the last payment was due.
2. Check the limitation period in your province.
3. Do not accept the debt until you know your rights.
4. Contact a Licensed Insolvency Trustee.

Knowing these protections saves you from costly mistakes that can restart the collection process.

Statute-barred debts and debt collection

Even if a debt is statute-barred, collectors can continue to call or write to you. But under the law, they cannot harass you. That includes threatening language, misrepresentation, or a demand for fees. Of note, your credit report might still show the debt for six years from the last activity date.

Taking Charge of Your Financial Future

Statute-barred debts can feel like a complex topic, but they also provide relief for many Canadians. Once a limitation period expires, creditors lose the right to sue, though the debt may still appear on your credit report.

If you’re facing overwhelming debt, a Consumer Proposal or personal Bankruptcy under the Bankruptcy and Insolvency Act (BIA) may provide a structured way forward. And if the CRA is involved, professional guidance is extra important.

The solution? Seek help early. A Licensed Insolvency Trustee can explain how insolvency proceedings apply to your situation and walk you through the best path towards a financial rebuild.

Adamson & Associates has a team of experienced Licensed Insolvency Trustees who can review your debts—statute-barred claims as well—and help you create an easy-to-follow plan to restore financial health. Contact Adamson & Associates today for a free, no-obligation consultation.

With knowledge and guidance, you can escape the weight of the past debts and start fresh confidently.