Limitation Period

Limitation Periods in Ontario

Ontario's Limitations Act, 2002 establishes a basic limitation period of two years. The clock starts on the day the claim is discovered, which is typically the date of the last payment or the date of the last written acknowledgment of the debt. There is also an ultimate limitation period of 15 years, after which no legal proceeding can be commenced regardless of discovery.

Note that the expiry of the limitation period does not extinguish the debt itself. The debtor still owes the money, and the creditor may still attempt to collect through non-legal means. However, the creditor can no longer initiate court proceedings to enforce payment.

Impact on Portfolio Valuation

The limitation period status of accounts in a portfolio significantly affects pricing. Accounts within the limitation period are more valuable because the buyer retains the option of legal enforcement. Accounts where the limitation period has expired (commonly called "statute-barred" accounts) are worth less because recovery depends entirely on voluntary payment.

During due diligence, buyers carefully review the last payment date and last acknowledgment date for each account to determine limitation period status. Accounts close to the expiry date require prompt action if legal enforcement is part of the buyer's recovery strategy.

Resetting the Limitation Period

In Ontario, the limitation period can be reset if the debtor makes a written acknowledgment of the debt or makes a payment after the original limitation period has begun to run. A partial payment restarts the two-year clock from the date of that payment. Buyers and their collection teams must be aware of these rules to properly manage their litigation timelines and ensure they do not lose the right to pursue legal action on recoverable accounts.