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How long before debt is written off in Australia?

You may or may not be surprised to learn that a client or customer’s debt can be completely wiped clean. Like most legal matters, debts are subject to a statute of limitations. If the creditor fails to take action before the statute of limitation expires, the debtor no longer has a legal obligation to pay it back. This makes debt collection one of the most important concerns for many businesses. A failure to collect can lead to serious financial troubles for many businesses. So, it’s important to know when debt can be wiped and what impacts this as there are some important considerations.

Read on to learn more about debt recovery timelines and the statute of limitation for debts.

What is the statute of limitation for debts in Australia?

The statute of limitation for a debt can vary depending on the type of debt and the Australian jurisdiction. For the purposes of this post, we are going to focus on simple contract debt because it is the most common form of debt to which these questions typically apply.

Throughout Queensland and the rest of Australia, the statute of limitations for a simple contract debt is 6 years. The only exception to this rule is the Northern Territory, where the statute of limitations is 3 years. It is also important to understand that the statute of limitations is not a deadline for collecting the debt; it is a deadline for filing the relevant claim with the courts.

But it isn’t as simple as saying a debt is written ff after 6 years. A judgement from the courts can also have an impact on the statute of limitations. If you have received a judgement in your favour, the statute of limitations is 12 years through most of Australia. The exceptions to this rule are Victoria and South Australia, which both have a 15-year limitation for debts associated with a court judgement.

 

What is a statute-barred debt?

During the limitation period, a creditor has the right to sue a debtor for recovery of the debt. If the limitation period expires, the debt becomes statute barred. When a debt is statute barred, it means that the creditor can no longer take legal action to recover the debt. Even if you were to file a claim, the debtor would have a complete defence because the debt would not be legally enforceable.

 

When does the limitation period start?

The limitation period starts when the creditor has the legal right to take action against the debtor. This starting date can vary depending on several factors. This includes the type of debt, the jurisdiction and the terms of the contract. In most cases, the limitation period begins when the debt becomes due or at a point when the individual has failed to meet the terms of the agreement.

Additionally, the limitation period can be reset in some circumstances. If the debtor makes a payment or a written acknowledgement of the debt, the statute of limitations starts anew. From the time of the written acknowledgement or the last payment, you have the full limitation period to take legal action if need be.

Depending on the jurisdiction, the limitation period can reset multiple times. In some places, the statute of limitations can begin again even after the initial limitation period has expired. Since this can vary depending on the territory and the type of debt, it is important to consult a debt recovery specialist if you have a debt that you believe may be statute barred.

 

Can you collect statute-barred debts?

New South Wales is the only territory where a debt is completely cancelled after the statute of limitations. In other territories, the debt still exists, it is just unenforceable. This means that you can still make attempts to recover the debt, but you need to tread carefully.

Once a debt is statute barred, all you can do is ask for payment. You can’t threaten legal action and you cannot make any attempt to deceive the debtor into believing they have a legal obligation to pay. In fact, you might even be required to inform the debtor of the debt’s legal status. If the debtor writes you a letter denying liability on a statute-barred debt, you may be legally obligated to cease all collection efforts.

While there are still efforts you can take on a statute-barred debt, recovery is very unlikely. With no legal remedy available, you are essentially relying on the person to pay you back out of a sense of personal obligation. Furthermore, the laws make recovery attempts in this situation very risky. If you happen to violate the law in an attempt to recover a statute-barred debt, you could find that you are the one facing legal action.

For more information on statute of limitations on debt collection in your state check out this 2005 ASIC report.

 

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