Dealing with a debt collector? You might not have to pay
Sandra Fry: Before rushing to pay an older debt, know your rights and responsibilities
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When should you be concerned about a debt in collections? Ideally, before it gets to that point, of course.
But what if a debt was incurred so long ago that you wondered if you were still responsible for paying it? Maybe you’re one of countless Canadians each year who receive a letter demanding payment on a debt you’ve long forgotten about or, worse, didn’t even know about.
Before rushing to pay an older debt, know your rights and responsibilities. Without acknowledging that you may or may not owe the money, request proof that the debt you’ve been asked to pay is actually your debt. It’s best to communicate in writing or by email so that you’ve got a ready-made paper trail to fall back on should the situation change and require it.
Written proof of a debt should include details of the account from the original creditor, the name and contact information of the agent/agency now trying to collect on the debt, and the “date of last activity” for the debt. What many consumers don’t know is that each province or territory has a statute of limitation for debt collection. The limitation period outlines the specific length of time a creditor (or their agent) has in which they can use legal means to enforce repayment of a debt.
In all provinces — except Manitoba, which, like the three territories, has a limitation period of six years — creditors have two years in which to collect on a debt. The clock starts ticking from the “date of last activity,” which is the date the debt was last paid, or the credit was last used. For example, that could be a charge on a credit card, or the initial loan advance if no payments were ever made. After the two/six years, a debt becomes “status barred,” unless it has been reactivated with an acknowledgement or payment.
Once an account is deemed to be beyond the limitation period, a creditor loses the right to enforce repayment of the debt. Keep in mind that there are some exceptions, such as arrears for child support, government debt and if a creditor previously obtained a judgment against you.
If you determine the debt is not yours, supply any proof of that to the debt collector, and take steps to protect your credit rating. Contact the two credit bureaus in Canada, Equifax Canada Inc. and TransUnion of Canada Inc., and request free copies of your credit report. If the debt is fraudulent, they will guide you through the necessary steps to clear your credit. You may need to file a police report, especially if your identity was compromised or stolen.
But if the debt is yours and you simply forgot about it, the situation is a bit different. If the time lapse means the debt is beyond the limitation period, creditors are not legally able to compel you to make payments. You no longer legally owe the money, but dealing with the original creditor likely won’t be possible for at least several more years, if not longer.
If the debt is within the statute of limitation, you will want to communicate effectively with the collection agency to figure out how to resolve the situation in a way that works for both of you. Each province or territory has its own rules governing what collectors can and cannot do, with strict rules regarding how and when a collection agent can contact you. There’s no room for threatening or harassing behaviour from either of you, so it’s important to understand your own rights and responsibilities as well as theirs.
Communicating effectively with the collection agent means you can consider your budget first and think about payment options, rather than agreeing to whatever they’re proposing just to get them off the phone. Contact a non-profit credit counsellor in your area to help you figure out which debt-relief option is best for you.
If you have the money to repay the debt in full, that’s great. But maybe you need to firm up a payment arrangement to take care of the debt within the next 12 months. You may want to offer a settlement, but that can be a poor option as far as your credit rating is concerned. A debt settlement means that a portion of the debt is written off and that notation will last on your credit report for at least six years.
You might also need to advise the debt collector that you’re not able to make any payments at this time, and then resist their pressure to do so. Your credit counsellor will be able to help you inform the collection agent of your status in a way that forces them to hear you out.
When it comes right down to it, only agree to whatever you can reasonably afford to pay. Get everything in writing from the collection agency or original creditor before making any payments. This will help ensure that you’re clear about what you’ve agreed to. Even how the debt is reported to the credit bureaus can be negotiated at this point. However, defaulting on a new payment arrangement can make your situation worse because the two/six-year clock started ticking with the last payment you made, and you’ll have defaulted twice.
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If you have a debt in collections, resist the temptation to just ignore it, but definitely don’t allow yourself to be pressured into paying a debt that you may not have to. Get help figuring out what to do about it. A plan will put your debt stress at ease and ensure it doesn’t come back to bite you when you least expect it.
Sandra Fry is a Winnipeg-based credit counsellor at Credit Counselling Society, a non-profit organization that has helped Canadians manage debt for more than 26 years.
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