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Debt Collection and the Statute of Limitations

Wednesday, November 23, 2016 - Posted by Michael McCulloch

It has been some time since we looked at the impact of the Statute of Limitations in debt collection so we thought that an update might be worthwhile as a refresher not only for our long-term subscribers but also those that have recently subscribed to this blog and our newsletter.

What Are Statute Barred Debts?

Statute Barred debts are debts to which the appropriate limitation period has expired for the debt to be collected. Across each State and Territory of Australia the limitation period varies from 3 years to 15 years.

The table below summarises the limitation period for each State and Territory:

It should be noted that in the table above that the limitation periods stated only apply to unsecured personal loans and credit cards (overdrafts, line of credits, etc). These are typically referred to as "simple contracts" and Court Judgments.

When Does the Limitation Period Start?

The limitation period starts from what is referred to as a "right of action". While not particularly straightforward a right of action can be interpreted as when a debt becomes due, either because a contractual repayment is required, or because an instalment that fell due is defaulted on as set out in the contract.

Can The Limitation Period Be Extended?

The limitation period can be extended when payment is received or the customer acknowledges the debt. There are other circumstances that may extend the limitation period, specifically relating to a Judgment Debt, however you should seek your own independent legal advice concerning this.

How Is A Debt Acknowledged?

The legislation surrounding the limitation period is very specific in relation to what must occur for the debt to be acknowledged. The acknowledgement must:

  • Be made by the customer or an authorised person acting for and on behalf of the customer;
  • Be in writing and signed; and
  • Constitute a clear knowledge that the debt exists and remains unpaid.
Expiration Of The Limitation Period

In New South Wales the legislation is very specific in that the debt is extinguished and demand for payment cannot be made. Any / all monies paid after the limitation period would need to be refunded to the customer.

Other States and Territories however do not extinguish the debt as such but legislation limits the available options to recover the debt. As an example if a customer resided in Victoria and 6 years for a simple contract or 15 years for a Judgment Debt had expired a demand for payment could not be made however if the customer were to keep making payments these could be accepted to reduce the debt.

Compliance With The Limitation Period

At LCollect we have systems in place to ensure that debts that are statute barred are not collected on and the appropriate action taken on a State by State basis on those debts to ensure continued compliance.

Need More Information?

If you would like to discuss this article or our commitment to compliance please contact us

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