Your Credit Card Debt Is Not Just A Matter Of Finance

Introduction

Credit cards play a crucial role in building a credit history and boosting credit scores, which are vital for reaching critical financial milestones like purchasing a car or a home. According to the latest report from Equifax Canada, consumer debt in Canada rose to $2.46 trillion by the end of Q1 2024, marking a 3.5% increase from 2023. This total includes credit card balances, lines of credit, auto loans, and personal loans. In 2023, about 22.4 million Canadian adults relied on credit cards to manage essential expenses, mainly due to soaring interest rates and persistent inflation. Additionally, we often encounter clients with significant gambling debts who use multiple credit cards to fuel their gambling addiction. It's vital to address credit card debt promptly, as neglecting it can lead to increased indebtedness and significantly impact other financial responsibilities, ultimately posing a severe threat to your financial stability. However, you can regain control and achieve economic security and stability by proactively managing and addressing credit card debt.

Statute Of Limitations

In Ontario, creditors, like banks, have a 2-year time limit under the Statute of Limitations to take legal action against you for any unpaid debt. If you don't respond to a lawsuit, a judge will resolve the case without hearing your side, and the creditors could obtain a default judgment in their favour. You would be found guilty because you never entered a defence.

Understanding Statute-Barred Debts

The Statute of Limitations only applies to unsecured debts, which include:

• Credit cards

• Lines of credit

• Payday loans

• Student loans

• Utility bills

• Unpaid invoices

• Tax debt

Understanding Statute-Barred Tax Debts:

In Ontario, tax debt can become statute-barred, a term that refers to the period after which the CRA may no longer legally collect a debt. This is subject to specific conditions under the Canada Revenue Agency (CRA) guidelines. Typically, the CRA has a 10-year period to collect tax debts from their assessed date.

Once the CRA completes its assessment of your income tax, GST/HST, or other tax obligations, a 10-year limitation period begins. The CRA can use collection methods such as wage garnishment or asset seizure. You can restart this limitation period by taking specific actions like admitting the debt in writing, making a payment plan, or dealing with legal proceedings initiated by the CRA. If you believe your tax debt is nearing or has surpassed this 10-year limit, verifying the situation with the CRA or seeking legal is crucial.

Secured Debts Are Not Subject To The Statute Of Limitations

Secured debts are not subject to becoming statute-barred, as distinct rules govern them. Secured creditors can collect debts by seizing the asset that secures the loan if payments are missed. This could involve foreclosure on a home, repossession of a car, or collecting collateral for a business loan. The balance becomes unsecured if the repossessed property's value doesn't cover the remaining debt. The creditor can then continue to pursue collection efforts. However, the debtor also has the option to file for insolvency, and the Statute of Limitations can apply to the remaining unsecured debt.

Two-Year Limitation Period Under The Ontario Statute Of Limitations Act

The Statute of Limitations takes effect two years following your most recent charge, payment, or written acknowledgment of the debt. The countdown begins upon a missed payment, and should you submit another payment or acknowledge the debt before the 2-year deadline, the timeframe restarts.

If debt collectors suggest a partial payment, remember that doing so within two years of the most recent default, payment, or written acknowledgment might restart the legal time limit for them to take action. Collectors might ask for a letter or email detailing your financial status and seeking an extension to resolve the debt to obtain written confirmation of the debt.

The Statute Of Limitations Act Does Not Erase Your Debts

If two years pass without payment or written acknowledgement, the Statute of Limitations becomes permanently enforceable for the debt. Debt collectors may attempt to extend the collection period by re-aging the debt. In Ontario, creditors are prohibited from reinstating the legal enforcement of the debt once the 2-year Statute of Limitations period has lapsed.

It is common for creditors to secure a default judgment within two years, leveraging the accumulating interest. The debt remains outstanding even if they can no longer pursue additional legal actions against debtors beyond this period.

Failure to respond to a debt lawsuit within the deadline could lead to a default judgment, allowing the creditor to collect the owed money quickly. This may result in a lien on your property, wage garnishment, or bank account freezing. The potential consequences of a default judgment underscore the urgency of addressing your debt.

Impact On Your Credit History

Credit bureaus can keep positive or negative information on credit reports for a prolonged period. Negative details regarding your accounts, like credit cards and loans, can stay visible for six years. A default judgment will also be on your credit report for the same duration. This enduring influence on your credit history should significantly influence your financial choices. If default judgments are absent from your credit report, they might lead potential lenders to be hesitant about extending credit to you in the future.

Exponential Growth In Your Credit Card Debt Following A Default Judgment

Despite having many unpaid debts to manage, banks may not act immediately after obtaining a default judgment against you. However, you could still be contacted for loan repayment even a decade later. It is crucial to promptly address your credit card debt to regain control of your finances, as it could grow significantly due to accumulating interest. You may be surprised that the total debt exceeds or even doubles the original sum. Take action now to avoid long-lasting consequences that impact your financial future.

The Consequences Of A Poor Credit History Can Include

• Renting an apartment and qualifying for loans will be more challenging.

• If you qualify for a loan, you will face higher interest rates due to being a higher-risk borrower.

• It's crucial to recognize that despite not appearing on your credit history after seven years, you are still responsible for any outstanding debts, as they do not vanish even if the Statute of Limitations applies.

Credit Card Debt Can Still Impact Your Estate After Your Passing

Even if a credit card is under an individual's name and sole responsibility, that person will still be accountable for the debt, even in the case of their death. If only one person signed the card agreement, the creditor will seek payment from the deceased's estate. Conversely, if the credit card is held jointly, the joint cardholder will be tasked with settling the outstanding balance.

In some cases, bank credit card agreements stipulate that the primary borrower (you) and the additional borrower share equal responsibility for the outstanding balance across all credit cards linked to the account. Alternatively, the additional borrower might only be accountable for expenses made on the supplementary card.

Do Not Ignore A Default Judgment

When you receive a default judgment, act immediately.

1.       Gather InformatInformationin with and collect all essential details regarding the debt collection procedure, such as invoices, notifications, and legal papers. Verify the correctness of any court-issued judgment and dispute it if your consumer rights were infringed upon during the debt collection process.

2.       Seek Legal Help:

Consumers should always seek legal advice before addressing a default judgment case. A little advice goes a long way, and with legal help, many people successfully get relief from the judgment. A lawyer can help you determine if the decision is correct and, if so, discuss your options. If the judgment is incorrect, your lawyer can help you determine how to challenge it.

3.       Act Fast and Take Options:

You have four main options to deal with a default judgment. Be realistic when choosing an option.

A.      accept the judgment,

B.      settle the judgment for less,

C.     challenge the judgment,

D.     or pursue debt relief.

While Option B is the most practical option, if you are burdened with substantial debts and have exhausted all other possibilities without success, it might be wise to consider Option D as a final recourse. Remember that opting for bankruptcy or a consumer proposal will lead to the disclosure of your financial information, including information on various areas of your life, such as employment opportunities, loan applications, and relationships with family and friends.

Conclusion

Even after the 2-year limitation period has passed, creditors may still seek legal recourse against you. It is essential to present a defence in court. Should a default judgment be obtained, creditors retain the right to seek repayment, even from your estate, upon your passing. By accepting the terms of a credit card, you are bound by law to repay the debt. It is imperative to seek legal counsel.

If you are having trouble managing your credit card debts, contact our office. We are here to offer you the support you need during this challenging time.