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

Drive-by parade being held for seniors in Vanderhoof

The route covers long-term care homes in the district as well as the hospital.

P.G.’s Barb Ward-Burkitt named new chair of Minister’s Advisory Council on Indigenous Women

A survivor of domestic abuse herself, Ward-Burkitt has served as vice-chair since 2018

Houston mill to re-open June 8

Ends lengthy shutdown which began in March

Daughter sets up GoFundMe page for mother recovering from a rare autoimmune disease

Jenn Farr Stephens, Vanderhoof resident, has been diagnose with Guillain-Barré Syndrome.

Class of 2020 to tour Vanderhoof’s downtown core in a “reverse parade”

Organizers are requesting businesses to make the day special for graduates this year as COVID-19 disrupted their celebration this year.

MAP: Dr. Henry reveals which B.C. regions have seen most COVID-19 cases

B.C. health officials release a first look at how the novel coronavirus has reached all corners of the province

‘I’m pissed, I’m outraged’: Federal minister calls out police violence against Indigenous people

Indigenous Minister Marc Miller spoke on recent incidents, including fatal shooting of a B.C. woman

Larva of voracious green crab discovered on North Coast

Public asked to retain the carcasses of these invasive species for DNA testing

Plan in place for BC Ferries to start increasing service levels

Ferry corporation reaches temporary service level agreement with province

B.C. starts to see employment return under COVID-19 rules

Jobless rate for young people still over 20% in May

Introducing the West Coast Traveller: A voyage of the mind

Top armchair travel content for Alaska, Yukon, BC, Alberta, Washington, Oregon and California!

Williams Lake RCMP capture fugitive walking along Highway 97 in city limits

Witness said they could hear police yelling for suspect to ‘get down’

Kelowna Mountie on desk duty following ‘aggressive’ arrest

The officer involved in an arrest that took place on May 30 in Kelowna has been placed on administrative duties

Protests shift to memorializing George Floyd amid push for change

‘There is something better on the other side of this,’ says Atlanta Mayor Keisha Lance Bottom

Most Read