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.

Just Posted

The latest EKASS survey confirms a steady decline in substance use among EK youth over the years. (image compilation via Pixabay)
Latest survey shows steady decline in adolescent substance use over the years

Starting in 2002, the survey has been conducted every two years to monitor changes in substance use patterns, attitudes and behaviors amongst East Kootenay youth.

The Aquatic Centre at Western Financial Place.
Cranbrook Aquatic Center to close temporarily

The annual shutdown of the Aquatic Center at Western Financial Place will begin earlier than scheduled this year and does not have a defined end date at this time.

Residents line up outside the Vernon Recreation Complex for their COVID-19 vaccine Saturday, June 5. (Jennifer Smith - Morning Star)
No appointments necessary for first dose COVID-19 vaccine: Interior Health

People can just show up at clinics, register on the spot and get the shot

Ryan McKenzie of the Kimberley Trails Society made an in-depth presentation to City Council describing the initial steps of the Electrify the Mountains eBike trails project. This is a look at the project one map.
Kimberley City Council hears details on Electrify the Mountain project

At the meeting of City Council on Tuesday, June 8 Ryan McKenzie… Continue reading

The Kimberley Public Library invites kids of all ages to join the 2021 BC Summer Reading Club. Kimberley Public Library file
Kimberley kids invited to join summer reading club at Public Library

The Kimberley Public Library invites kids of all ages to join the… Continue reading

Canadian Prime Minister Justin Trudeau participates in a plenary session at the G7 Summit in Carbis Bay, England on Friday June 11, 2021. THE CANADIAN PRESS/Adrian Wyld
Canada donating 13M surplus COVID-19 vaccine doses to poor countries

Trudeau says the government will pay for 87 million shots to be distributed to poor countries

Premier John Horgan speaks as provincial health officer Dr. Bonnie Henry, right, and health minister Adrian Dix look on during a press conference to update on the province’s fall pandemic preparedness plan during a press conference from the press theatre at Legislature in Victoria, Wednesday, Sept. 9, 2020. THE CANADIAN PRESS/Chad Hipolito
B.C. officials to provide details on Step 2 of COVID reopening plan Monday

Step 2 could allow for larger gatherings and a resumption of recreational travel

Indigenous Services Minister Marc Miller is seen during a news conference, Wednesday May 19, 2021 in Ottawa. THE CANADIAN PRESS/Adrian Wyld
Indigenous child-welfare battle heads to court despite calls for Ottawa to drop cases

Feds are poised to argue against two Canadian Human Rights Tribunal rulings

The Great Ogopogo Bathtub Race has been held in Summerland as a fundraising event. Do you know which Canadian city introduced this sport? (Black Press file photo)
QUIZ: A summer’s day at the water

How much do you know about boats, lakes and water?

Join Black Press Media and Do Some Good
Join Black Press Media and Do Some Good

Pay it Forward program supports local businesses in their community giving

Two-year-old Ivy McLeod laughs while playing with Lucky the puppy outside their Chilliwack home on Thursday, June 10, 2021. (Jenna Hauck/ Chilliwack Progress)
VIDEO: B.C. family finds ‘perfect’ puppy with limb difference for 2-year-old Ivy

Ivy has special bond with Lucky the puppy who was also born with limb difference

A million-dollar ticket was sold to an individual in Vernon from the Lotto Max draw Friday, June 11, 2021. (Photo courtesy of BCLC)
Lottery ticket worth $1 million sold in Vernon

One lucky individual holds one of 20 tickets worth $1 million from Friday’s Lotto Max draw

“65 years, I’ve carried the stories in my mind and live it every day,” says Jack Kruger. (Athena Bonneau)
‘Maybe this time they will listen’: Survivor shares stories from B.C. residential school

Jack Kruger, living in Syilx territory, wasn’t surprised by news of 215 children’s remains found on the grounds of the former Kamloops Indian Residential School

Most Read