Your questions answered: statute-barred debts and insolvency proceedings

What does ‘statute barred’ mean?

When a debt is statute-barred, it cannot be brought to court and legally enforced because too much time has passed.

What is a ‘limitation period’?

The limitation period is the window that creditors have to sue for an outstanding debt. This timeframe is determined by provincial legislation. For example, the Limitations Act in B.C. defines the limitation period as ‘the period after which a court proceeding must not be brought with respect to the claim.’

What is the basic limitation period?

In B.C., the basic limitation period starts two years from the date a claim to remedy an injury, loss, or damage that occurred as a result of an act or omission ‘discovered’ by the claimant.

The two-year period is designed to provide sufficient time for a plaintiff, once a claim is discovered, to seek legal advice, consider the available options, and start court proceedings.

For a claim to be discovered, the person has to know or reasonably ought to know about the injury, loss, or damage caused by the defendant, and that a court proceeding is an appropriate means to seek remedy.

What is the ‘ultimate limitation period’?

The ultimate limitation period is 15 years after the day on which the act or omission on which the claim is based took place. 

Examples of claims that may be subject to the ultimate limitation period include those where the claim took place out of conversion, fraud, recovery of trust property, future interest in property claims, secured claims, indemnity claims, and claims against minors or against persons under a disability. The determination of these exemptions can get extremely technical. Speak to a lawyer to determine if claims against you may be exempt from the basic limitation period.

Are there exceptions to the 15-year ultimate limitation period?

If a counterclaim or other related claim is brought before the expiration of the ultimate limitation period in the first mentioned claim, the counterclaim or related claim may be allowed to proceed.

The ultimate limitation period can be affected if the person acknowledges the claim. The clock restarts if the person acknowledges liability in respect of the claim or if the act or omission that the claim is based on is deemed to have taken place on the day on which the acknowledgement is made. 

It is important to note that the ‘acknowledgment of debt’ must be in writing, signed by hand or electronic signature, or made by the person or person’s agent. 

How do I know if the limitation period has passed on my debts?

If you have not made a payment or acknowledged the debt for a period of two years or more, the debt is considered to be statute-barred. A statute-barred debt is uncollectible.

Prior to the expiry of the two-year period, the clock can be restarted if:

• You make a payment, even if it is a partial payment.
• You acknowledge the debt in writing, signed by hand or electronically.

Email exchanges may be considered an acknowledgment of a debt if the emails have sufficient information to identify the parties.

If my debt is statute-barred, am I off the hook for paying it?

Once a debt is considered to be statute-barred, the creditor can no longer sue you for the amount owing. Unfortunately, this does not necessarily mean that the debt just goes away.

The creditor or a collection agent on behalf of a creditor may still contact you for payment.

If you agree to start making payments on the debt after a debt becomes statute-barred, this does not restart the limitation period clock.

Without the ability to take legal action to recover the debt, the creditor may eventually stop trying to collect.

Does the Limitations Act apply to all debts/claims?

No, some claims to which the Limitations Act does not apply are:

• Claims for possession of land in specific circumstances
• A claim by a secured party in possession of collateral
• Some landlord claims over property
• Claims relating to sexual misconduct or assault
• Claims relating to assault or battery
• Claims for arrears of child support or spousal support

Special situations

Some claims are not subject to the basic limitation period and may be subject to an extended limitation period. These include:

• Claims of a minor
• Claims of a person under disability
• Claims based on fraud or recovery of trust property

Special claims may have an extended limitation period, or the commencement of the limitation period may be delayed. Refer to the Limitations Act for further clarification if you are a minor, a person with a disability, or if you have a claim as a result of fraud or recovery of trust property — or seek the advice of legal counsel.

How will statute-barred debts be treated if I file Bankruptcy or a Consumer Proposal?

A statute-barred debt is not a debt that is provable in Bankruptcy proceedings. This means that the creditor may not participate in the Bankruptcy or Consumer Proposal. 

Statute-barred debts should still be included on your Bankruptcy or Proposal documents to protect you from future collection action. The trustee will scrutinize the claims of creditors for limitations issues. If you are filing Bankruptcy and have statute-barred debts, you may be required to provide further information as to the last contact date or payment made.

Are my income tax debts statute-barred too?

There are different limitations to the collection of income tax debts. Per CRA’s website, a collections limitation period (CLP) is the time in which the CRA can take to collect a tax debt.

The CLP start date and duration will be different depending on the type of tax debt. The limitation ends after either six or 10 years from the date that it started. Certain events can restart or extend the limitation period. When this happens, the clock stops running on the date that an event begins and it will not run during the event. This has the effect of stalling the collection limitation period.

Will Bankruptcy or a Consumer Proposal stop CRA from continuing to collect my income tax debts?

Yes, income tax debts are provable claims in Bankruptcy. In most cases, the CRA will cease collection action immediately upon filing a Proposal or Bankruptcy. There are special situations where CRA may be able to continue to collect. For more information on income tax debts in insolvency proceedings, speak to your local MNP Licensed Insolvency Trustee.