A statute of limitations is a legal expiry date: a point beyond which legal action of various kinds cannot be taken. The term is most familiar from its use in criminal law, where it indicates the point beyond which someone cannot be charged with a particular criminal offence. However statutes of limitation also exist in civil law, where they place a time limit on the initiation of legal proceedings.
As you might expect, different limitation periods are applied to different offences and areas of disagreement: the more serious the issue, the longer the limitation period. Periods of limitation also vary by jurisdiction.
In the financial world, a statute of limitations on debt indicates the point beyond which a creditor cannot take legal action against a debtor – by, for example, applying for a court order against them. Once the limitation period has been reached, the sums due become ‘time-barred’ and can no longer be recovered. This is also known as ‘statute-barred’ debt.
Why is there a statute of limitations on debt?
Statutes of limitations in both civil and criminal law are intended to address the fact that, as time passes, memories dim and available evidence becomes scarcer and less reliable. A period of limitation therefore minimises the chances of a miscarriage of justice. In civil cases, limitation periods also prevent older disputes from clogging up the courts.
The statute of limitations in Alberta
The Limitation Act of Alberta sets out a clear timeframe for taking action on debt repayment in the province.
Under the Act, creditors only take legal action or seek a judgement against a debtor if the debt or loss was incurred less than ten years previously, and less than two years after they first became aware of the debt, or ought to have become aware of it. The earliest expiry date will be applied.
So it is important for creditors to take action within the first two years or their debtors may be able to successfully argue that the debt is now barred by statute. If, however, the creditor does succeed in obtaining a legal judgement against a debtor, the statute of limitations could be extended significantly by up to ten years.
It is worth noting that a statute of limitations on debt only prevents legal action by the creditor but does not technically eliminate the debt. Creditors can still refer debtors to collection agencies or contact them to request payment, but since they will not be able to take action to claim the money, many will not bother to pursue the issue beyond the two year point.
If the debtor themselves takes action – by, for example, making a payment outside the limitation period or simply acknowledging the debt – the statute of limitations can be reset, making this uncollectable debt actionable once more.
Naturally, Alberta’s limitation laws are specific to the province – the applicable regulations in other provinces differ to varying degrees. On a national level, the government of Canada specifies a six year limit on legal action to recover debt.
Whether you are a creditor or a debtor, it is important to obtain the best legal advice. Sometimes claims are made by the other party which do not accurately reflect the law in your province.
If you are a resident of Alberta, or operate a business based there, contact Allan Marshall & Associates Inc today for practical advice and support with debt problems.