It’s a well-known fact that most Canadians carry some level of household debt, and the amount of which we are carrying has reached yet another record high last year. However, an urban legend still continues to perpetuate through the generations that claim if you hold out long enough, your debts will eventually be forgotten and forgiven. So what’s the actual truth behind this?
The idea that debt can and will disappear if ignored for a long enough period seemly stems from the fact that there is a statute of limitations on debt, and in many cases old debts can eventually disappear off of credit records, however don’t let this fool you into thinking that this means the debt is gone and forgiven. If you have any outstanding debts or liabilities, you will continue to owe until that debt is paid, whether it is within your lifetime, or in some cases even after death as well.
The statute of limitations on debts
The statute of limitations on debts only applies to unsecured debt such as credit cards and does not apply to secured debts such as mortgages or loans backed by property, taxes, student loans, spousal support, etc. Also, this statute only prevents creditors and collection agencies from taking a debtor to court, after a certain amount of time has elapsed (in Alberta the statute of limitations is 2 years). The purpose of taking the debtor to court would be to ultimately reclaim the amount owed to the creditor, and get the required authorization to garnish wages if need be.
After the statute of limitations has passed, a creditor may not be able to take you to court, but this does not prevent them from still doing everything they can to collect. This includes the continual hounding, harassment, and threats until the debt is paid out and/or negotiated. This also includes old debts once thought to be long forgotten about.
Even after death, your debts can live on. Unsecured debts are typically written off as a loss after you die, however, your spouse and family will be responsible for picking up the tab or sell off the assets on any outstanding balances on any secured debt such as your mortgage or car loan. If you owe money to the CRA, they can stake a claim to your estate, which will reduce the amount of inheritance available to your survivors.
Handling your debt
If you are struggling with debts, especially those that are impacting your ability to keep up with your mortgage payments, please contact us to see what options you may have to help you better manage your finances and help rid you of the stress of lingering debts.