There are always many questions that I am asked in relation to whether a debt needs to be paid or not and the simple answer is sometimes a surprise to some to learn that their unpaid debts will ‘expire’ within a certain time frame. As is the case with all court proceedings, there is a statute of limitations governing the time limit in which you can take legal action to collect a debt. Once a debts limitation period has expired, it becomes “statute-barred debt” and it becomes impossible for a creditor to take legal action to recover it.

Some cheeky debt collectors will often try to trick you in to making a really low payment plan with them in order to ‘keep the debt going’. Beware of this as it goes on a lot and they do not disclose to you that by making a payment even of a single dollar you are realising the debt all over again. I am not trying to tell you not to pay your debts, just be smart about dealing with those random debt collection calls and what you say and do. You might assume a $10 weekly payment plan is keeping them at bay, but it is also dragging on the debt and likely to be just costing you in interest repayments.

Defaults cannot be noted or listed on your credit report if they are statue barred. So, if you see an old debt being relisted after the 5 year period or if you notice that there is a debt collection company listing a very ‘old’ debt than chances are it may be statute barred.  We Fix Credit can help with clearing these defaults from your credit file, and if you are unsure, we can investigate on your behalf so that you don’t have to speak to anybody other than us. This was you can not only fix your credit, but save time and money.

There are many different types of contracts under which debts may arise. They include fixed term loans (such as personal loans), credit card contracts, home loans and contracts for the purchase of goods such as hire-purchase agreements.  The type of contract under which the debt arises is critical in determining whether a 6 year or a 12 year limitation period applies. For most simple contracts (including unsecured personal loans or credit cards, and generally most debts handled by collection agencies), the limitation period is six years for all States, but in the Northern Territory it’s three years.

When a debt follows a court judgment, the limitation period is longer: 12 years for all States and Territories, except South Australia and Victoria, which have a 15 year limitation period.

These time limits vary slightly across different States and Territories in Australia, and are governed by a number of federal and state laws, meaning the jurisdiction where you have incurred their debt becomes significant.

For most debts, the bank or collector must begin court action to recover the debt within 6 years of the date: that you last made a payment; or that you admitted in writing that you owed the debt.

An easy way to determine if your debt is statue barred is to understand these basic dates;

  • the date you should have made a payment;
  • the date you last made a payment; or
  • the date you or your representative acknowledged in writing that you owe the debt, so please be so careful who you give authority to manage your debts on your behalf as I have seen so many situations where debt negotiation or credit repair companies that have admitted the debt that was almost about to expire costing the client a heap of money they would not have had to pay. 

You should start with the most recent of these events and add six years, if the six years has expired, the debt is statute barred unless the creditor serves you with a court claim in the interim.

If the loan is classed as a secured debt, it usually is in a form of a Mortgage. If the debt is unsecured, a claim to recover the debt must begin within 6 years from the date that debt first became due, which will usually be the date the borrower defaulted. However, in the case the debt is secured by a mortgage a claim to recover the debt may be commenced within 12 years from the date that debt first became due. While many people usually understand a mortgage to mean the security over their home in the form of a home loan, the reality is that a mortgage is much broader than that and includes a few different types of security arrangements. The definition of ‘mortgage’ also includes mortgages over real property, mortgages over goods (‘chattel mortgages’) as well as charges on property for securing a loan.

For State and Territory statute of limitation laws, you can check out the individual state government legislation for your state to see what applies to you I have included the links for your reference in this article.

Please tread with caution! One payment or one admission could cost you a small fortune.

Useful References;

Australian Capital Territory – Limitation Act 1985

New South Wales – Limitation Act 1969

Northern Territory – Limitation Act 1981

Queensland – Limitation of Actions Act 1974

South Australia – Limitation of Actions Act 1936

Tasmania – Limitation Act 1974

Victoria – Limitation of Actions Act 1958

Western Australia – Limitation Act 1935

https://www.accc.gov.au/publications/debt-collection-guideline-for-collectors-creditors