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What is the statute of limitations on debt? | Creditor & Debtor Rights - YouTube
Channel: Hoyes Michalos
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I'm Doug Hoyes, a Licensed Insolvency Trustee
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with Hoyes Michalos & Associates,
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and I'm here today to explain how the statute of limitations works
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and how it affects you and your debt.
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If you ignore debt, will it go away? Not exactly.
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If you borrow money and you don’t pay it back,
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you still owe that debt.
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There are only three ways to make the debt go away;
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pay it back in full,
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make a settlement with your creditor on your own
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or through a legal consumer proposal, or file bankruptcy.
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If you choose to ignore a debt, what can happen?
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Well, you may get collection calls and letters
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from either the original creditor or a collection agent.
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The creditor could sue you.
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And the debt may appear on your credit report.
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Here’s what you need to know about ignoring a debt.
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If you owe someone money, even from years ago,
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there’s nothing stopping that creditor
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or a collection agency from calling you to collect, forever.
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Many people are surprised to get a call from a collection agency
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from a 10-year-old debt.
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It’s likely a debt buyer purchased that debt for pennies on the dollar
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and now they want to collect.
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You still owe that debt so they can still call you.
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However, the statute of limitations gives you protection
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from a creditor taking legal action against you to collect that debt.
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If a bank or a credit card company wants to collect on a debt
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they might sue you, get a judgement against you
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which is a piece of paper signed by a judge
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saying you owe the money
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and then they can use that judgement
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to get a wage garnishment.
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A statute of limitations sets a maximum period
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during which a creditor can pursue these legal options.
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Every province has different laws setting out that time period.
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In Ontario the Limitations Act says that
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a creditor cannot start a legal proceeding to collect money from you
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if it’s been more than two years since the claim was discovered,
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which generally means two years since you last made a payment
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or otherwise confirmed that you owe the money.
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If a creditor tries to sue you after two years,
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you would file a Statement of Defence stating that the debt is too old.
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Don’t ignore the lawsuit.
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After all, the judge may not know it’s
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over two years if you don’t tell them.
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But remember, even if the creditor can't sue you
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and can't get a judgement against you
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and garnishee your wages because the debt is too old,
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the debt itself doesn’t go away.
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Why is that important?
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Well, because the debt may continue to appear on your credit report.
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Equifax will purge or remove the old debt
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six years after the last activity.
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TransUnion will automatically remove it
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seven years after the last activity.
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If you want to get a new loan,
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be aware that you have an old unpaid debt
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that will stay on your credit report for six or seven years
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which may impact your ability to borrow.
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After that, new lenders won't see it on your credit report.
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There are certain debts that are not covered by the statute of limitations,
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including tax debts, government student loans,
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alimony or child support and parking tickets and fines.
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Some debts have other collection rights that don’t go away
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like 407 ETR debts and CMHC mortgage shortfalls.
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So, should you ignore an old debt?
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If you’re not worried about your credit report
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and you can handle collection calls and letters,
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you probably can ignore it.
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If you have old debt, and perhaps other newer debts,
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it may be wise to look options like a consumer proposal or bankruptcy
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to wipe the slate clean entirely so you can get a fresh start.
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