What Are The Statute of Limitations in Canada & How Do They Work

Limitation periods place pressure on creditors who wish to sue you to do so within a particular period of time. After the expiration of this period, it is much harder—and often impossible—for a creditor to collect money from a debtor for an unpaid debt.

Canadian law starts with a limitation period of six years. However, provincial laws often shorten this period.  In this article, we explain more about how long creditors can collect on your debt, pursue legal action and what you can tell creditors if you have an old debt.

Limitation periods typically only apply to consumer transactions where the creditor is an unsecured creditor.

A debtor is not able to take advantage of a limitation period for:

  1. Secured debts.
  2. Monies owing to the government including student loans
  3. Non-dischargeable debt which includes child support and spousal support obligations, fines, and civil judgments involving fraud.

What Are The Limitation Periods

Limitation periods vary from province to province and every few years a province will change its limitation period. From your perspective, the relevant limitation period is the one in the province or territory in which you currently live.

The limitations period as of January 2020 are:

  • Alberta: Two years
  • British Columbia: Two years
  • Manitoba: Six years
  • New Brunswick: Two years
  • Newfoundland and Labrador: Two years
  • Northwest Territories: Six years
  • Nova Scotia: Six years
  • Nunavut: Six years
  • Ontario: Two years
  • P.E.I.: Six years
  • Quebec: Three years
  • Saskatchewan: Two years
  • Yukon: Six years

A limitation period is like a stopwatch and can be reset

It is very helpful to think of a limitation period like a clock or a stopwatch.  If you owe money to your creditor for a debt then the limitation begins to run on the date of your last activity which is usually your last payment.

There are two things that a consumer can do to restart the clock on a limitation period if it has not yet expired:

  1. Make a partial payment which serves to reset the limitation period.
  2. Make a written acknowledgment of a debt.

Once a limitation period has expired, however, it remains expired. There are no actions that you can take that will reset the clock.

What happens to your debt after the limitations period expires?

Regardless of what the Limitations Act may say there are a few things you should know:

  1. Debt collectors may still pursue you for the money.
  2. Any acknowledgment that the debt is yours or you owe the money or any payment on the principal or interest owed (even one penny) can reset the limitation period.
  3. Debts remain listed on your credit report for six years from the date of the last collection activity, so this debt will impact your ability to borrow in the immediate future.
  4. There are certain circumstances that can extend the limitation period of a debt (such as debts pursuant to the Family Law Act) as well as exceptions to most Limitations Acts surrounding certain outstanding judgments, fines, taxes, student loans, environmental claims, and other specified debts set out in the Limitations Act.

Once the limitation period has expired the consumer has an “affirmative defense” which he can plead if his creditor were to sue him.  If your creditor sues you after the expiry of a limitation period and you defend the lawsuit pleading the expiry of your province’s limitation period then you will be successful.  If you, however, fail to defend the lawsuit—or fail to plead the expiry of your province’s limitation period in your defense—then your creditor might very well successfully sue you.

Taking advantage of a limitation period

It is possible that you might currently find yourself in no man’s land—where you have not made payments to one or more of your creditors for several months but the limitation period in your province has not yet expired.  If you find yourself in this position one of your options is to wait and see whether or not any of your creditors are going to sue you.

If the limitation period on one of your debts has expired then you will be in a better bargaining position with your creditor should you wish to negotiate a settlement with your creditor.  You could, for example, make a one-time settlement offer to your creditor to settle by making a one-time lump sum payment of 20 cents on the dollar—with your offer to be revoked for eternity in 30 days.  This can often be a very effective negotiating strategy.

You should consider speaking to a licensed insolvency trustee (bankruptcy trustee) before you start negotiating settlements because there might be a number of reasons why a consumer proposal is a more optimal solution.  One of the disadvantages of settling your own debt is that you might be able to negotiate a great deal with one creditor only to find some of your other creditors will not offer favourable settlements.  In many instances, a licensed insolvency trustee will be able to get you a better result by simply doing a consumer proposal.  One of the advantages of doing a consumer proposal is that you can save money eliminating debts owing to the government including student loans provided you ceased attending school full time at least seven years ago.

The powerful combination of limitation periods and creditor’s reluctance to sue people

Limitation periods—simply on their own—can potentially be important to a Canadian struggling with unsecured consumer debt.  Most Canadians, including most people providing advice to consumers struggling with consumer debt, fail to appreciate the importance of limitation periods combined with a patient “wait-and-see approach” to a person’s debt situation. Theoretically, a consumer might owe thousands of dollars in unsecured consumer debt and if they simply were to wait to see if they were sued before the expiry of a limitation period they might find themselves in a position where the limitation periods expired on all or most of their indebtedness. Sometimes a creditor’s ability to take action will depend upon what they know about your circumstances – whether you have any wages to garnishee for example or assets. That’s why talking to someone like a licensed insolvency trustee about your specific situation if you have significant unpaid debts is always a good idea.

If you owe money and are concerned about having to repay that debt, we suggest you consult a licensed debt advisor today to ask about your particular situation.