Credit cards are displayed in Montreal, Wednesday, December 12, 2012. Zombie debt will inevitably come back to haunt Canadians because of the country’s scourge of consumer indebtedness, say insolvency experts. THE CANADIAN PRESS/Ryan Remiorz

Credit cards are displayed in Montreal, Wednesday, December 12, 2012. Zombie debt will inevitably come back to haunt Canadians because of the country’s scourge of consumer indebtedness, say insolvency experts. THE CANADIAN PRESS/Ryan Remiorz

Zombie debt will haunt more Canadians as scourge of indebtedness rises: experts

Total debt per consumer has surged to $71,979 in the second quarter

Canadians with old debts beware: a momentary slip or lack of knowledge of your legal rights could results in past debts rising from the dead and coming back to haunt you.

Zombie debt — old accounts that may have been written off as “uncollectable” and which have passed the statute of limitations — is expected to increase due to Canada’s high level of consumer indebtedness, say insolvency experts.

Canadians have taken advantage of cheap money, with total debt per consumer surging to $71,979 in the second quarter, up from about $57,000 five years earlier, according to credit monitoring service Equifax.

Delinquencies are expected to rise once interest rates eventually climb and put stress on the ability of some borrowers to make payments.

“[Debt] is increasing faster. So I would be concerned that there is a jump in people who are finding themselves unable to pay their debts,” says Julie Kuzmic, Equifax Canada’s director of consumer advocacy.

That would lead to more accounts going to collection agencies and aging even after the original creditor loses interest in collecting.

“As you get a higher consumer debt level, more and more of those — just by the sheer statistics alone — are going to be older debts,” says Scott Terrio, manager of consumer insolvency at Hoyes, Michalos & Associates, a Toronto-based company specializing in insolvency.

Statute of limitations laws across the country protect consumers from lawsuits if their unsecured debt hasn’t been repaid within the allotted time.

The statute of limitations is two years in Ontario, Alberta, Newfoundland and Labrador, B.C., P.E.I. and Saskatchewan. It’s three years in Quebec, and jumps to six years in the remaining provinces and territories. The federal limitation is six years.

The timelines mean creditors and collections agencies can’t go to court after that period of time to force payment.

But that won’t keep aggressive collection agencies at bay. Debt remains on a person’s credit file for six years and technically doesn’t ever vanish entirely.

Efforts to collect old debt can resurface after it is sold to a new collections agency for cents on the dollar.

Successfully pressuring just a few unwitting debtors to make a payment could be enough to make the exercise profitable for them.

“If I collect from one person, I can probably cover 10 or 20 files because I’ve only paid five cents or something,” Terrio said.

Zombie debt comes in many forms, including legitimate debts that have been forgotten or ignored, scenarios where innocent parties share the same name of a debtor, or cases of identity theft or computer error.

It involves unsecured credit from credit cards, lines of credit, phone bills and the like. It does not apply to secured debt such as mortgages and money owed to government for income tax, property tax, fines, outstanding health care premiums and student loans.

Old debt becomes zombie debt when a debtor acknowledges the money owing after the statute of limitations has lapsed, said David Gowling, senior vice-president with MNP Debt, one of Canada’s largest insolvency practices.

“That can resurrect it and now you’re starting your whole statute of limitations all over again.”

Some cases of zombie debt border on the absurd. Collections agents hounded one person a few years ago for money owed to Eaton’s, even though the department store folded 20 years ago, said Gowling.

READ MORE: Bankruptcies in British Columbia on the rise

Experts advise debtors not to acknowledge debt and if threatened with a lawsuit, tell the caller to send proof of the debt. Chances are they can’t and won’t bother because the statute of limitations has passed for seeking a judgment.

While some actions by debtors could get the clock ticking again on the statute of limitations, it usually requires that a person acknowledge their debt in writing, said Lee Akazaki, partner with Gilbertson Davis LLP, a Toronto-based law firm.

That could include replying to an email agreeing that the debtor owes the money.

Responding with “I don’t owe money because that’s an old debt” is not an acknowledgment.

“It just means you used to owe the money but you don’t anymore,” he said.

Laurie Campbell, CEO of Credit Canada, a non-profit debt consolidation and credit counselling agency, has never come across old debt restarting the statute of limitations countdown clock.

She worries that people afraid of being sued will unnecessarily seek a bankruptcy trustee.

“People should not be running to see a trustee outside of that two-year window because they’re going to pay fees for something that may never come about anyway,” she said in an interview.

Campbell said some people feel a moral obligation to repay debts even though they legally can’t be forced to do so.

She advises against taking a knee-jerk reaction.

“Make sure you get the right advice before you make a decision that could harm you in the long-run.”

Ross Marowits, The Canadian Press


Like us on Facebook and follow us on Twitter.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

B.C. Finance Minister Selina Robinson outlines the province’s three-year budget in Victoria, April 20, 2021. (B.C. government video)
B.C. deficit to grow by $19 billion for COVID-19 recovery spending

Pandemic-year deficit $5 billion lower than forecast

Mark Strahl, MP for Chilliwack-Hope, delivered a statement in the hybrid sitting of the House of Commons on March 23, 2021, calling on the Liberal government to present a plan for when COVID-19 restrictions can be safely eased. (Screenshot/ Mark Strahl)
Chilliwack Hope MP Strahl says federal budget doesn’t reflect needs of Canadians

MP says budget illustrates that Liberals don’t have a plan to recover from COVID-19 losses

The spooky scarecrow of the Valley Huskers takes on the logo of the Regina Thunder in a national social media contest produced by Football Canada.
Huskers logo needs your online vote in semi-final round of Football Canada contest

The scarecrow has 2 more foes to vanquish to be named the best amateur football logo in the country

Kosumi Street in the Sardis neighbourhood of Chilliwack was opened to traffic on April 14, 2021. (City of Chilliwack)
New connector road in Sardis opened to traffic

Kosumi Street was named to honour roots of Japanese-Canadian family that settled in Chilliwack

Rene Cortin/Wikimedia commons
Chilliwack Bowls of Hope Society pilot program promotes garden growing

Twenty Chilliwack families are participating in the ‘Garden Box to the Table’ program

FILE – NDP Leader John Horgan, right, and local candidate Mike Farnworth greet one another with an elbow bump during a campaign stop in Coquitlam, B.C., on Friday, September 25, 2020. THE CANADIAN PRESS/Darryl Dyck
B.C. won’t be using random individual road stops to enforce travel rules: Safety Minister

Minister Mike Farnworth says travel checks only being considered at major highway junctions, ferry ports

A man pauses at a coffin after carrying it during a memorial march to remember victims of overdose deaths in Vancouver. THE CANADIAN PRESS/Darryl Dyck
B.C. announces historic half-billion-dollar funding for overdose crisis, mental health

Of it, $152 million will be used to address the opioid crisis and see the creation of 195 new substance use treatment beds

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

Children’s backpacks and shoes are seen at a CEFA (Core Education and Fine Arts) Early Learning daycare franchise, in Langley, B.C., on Tuesday May 29, 2018. THE CANADIAN PRESS/Darryl Dyck
B.C. budget to expand $10-a-day child care, but misses the mark on ‘truly universal’ system

$111 million will be used to fund 3,750 new $10-a-day spaces though 75 additional ChildCareBC universal prototype sites over the next three years.

John Wekking, Merritt Road Report - Facebook
 Coquihalla Road Report
Wildfire sparks off Coquihalla in Merritt

The wildfire is located near the Dollarama off of Highway 5

Mak Parhar speaks at an anti-mask rally outside the Vancouver Art Gallery on Sunday, Nov. 1, 2020. Parhar was arrested on Nov. 2 and charged with allegedly violating the Quarantine Act after returning from a Flat Earth conference held in Geenville, South Carolina on Oct. 24. (Flat Earth Focker/YouTube.com screenshot)
Judge tosses lawsuit of B.C. COVID-denier who broke quarantine after Flat Earth conference

Mak Parhar accused gov, police of trespass, malfeasance, extortion, terrorism, kidnapping and fraud

Ambulance paramedic in full protective gear works outside Lion’s Gate Hospital, March 23, 2020. Hospitals are seeing record numbers of COVID-19 patients more than a year into the pandemic. (The Canadian Press)
B.C.’s COVID-19 infection rate declines, 849 cases Tuesday

Up to 456 people now in hospital, 148 in intensive care

Most Read