In Ontario, there is a statute of limitations on unsecured debt.
That basically just means that they can only sue you for your debt for two years after your last payment.
There are some misunderstanding on this, though, so let’s look at it in more detail…
Basically, if the default (remember that all “default” means is when you stopped paying on time) occurred after January 1, 2004, you have two years in which the debtor has the option to sue you. So basically, after two years, they can try to guilt you into paying, but they cannot force you using the courts. However (and this is important) if you make a payment, the clock resets, and they regain that right all over again for another two years starting from that day. So for the love of all that is good and holy, do NOT start repaying a debt once you’ve gone to a collection agency without carefully considering this implication. Basically, you want to decide when you start missing payments if it’s worth trying to start them up again or not.
Once the two years have passed and the debt is no longer something they can sue for, it opens up the chance to negotiate payments for far less than the “book value” of the debt. So, for example, if I default on a $3000 credit card balance, and wait for over two years before negotiating, I can settle sometimes for $1500 or less. In fact, given enough time, you can probably settle for 10% or less of the original debt. However, you’re taking two risks:
- You could be sued in the first two years if the debt is substantial enough
- You will have substantial impact on your credit rating. Of course, it could be that you have missed enough payments that your credit rating is already substantially impacted by that debt.
Note that this does NOT have any implications on the behavior of the agency. What I mean is that after two years they can still continue to call twice a week, etc. The one thing you can know after those two years that does change is that if you feel they are hinting about threats of lawsuits, you now know with 100% certainty that they are bluffing (if it’s an unsecured, non tax/student loan debt.)
They can still phone you, they can still pass your account off to another agency, they can send you lots of letters…
They just cannot sue, which is, honestly, really nice to know.