Like most legal matters, debts are subject to a statute of limitations and you may be surprised to find out that a customer’s debt can be completely written off after a certain time if his business operates in the right territory. Once the statute of limitation expires and the creditor failed to take action within this time, the debtor no longer has a legal obligation to pay the debt. As failing to collect a debt can cause serious damage to a business since it restricts cash flow and limits future business opportunities, debts and their statute of limitation should be an important concern for business holders. If you are curious and want to find out more about the timelines of debt collection, read on.
Depending on the type of debt and Australian jurisdiction, the statute of limitation can vary hence this post focuses on simple contract debt only to make it easier for readers to follow. Throughout Australia, except the Northern Territory, the statute of limitations for a contract debt is six years and for the Northern Territory a short three years. For a creditor, it is important to know, that the statute of limitations restricts to filing the relevant claim only, but is not the deadline for collecting a debt. The statute of limitations can only be extended through a court judgement to up to 12 years all over Australia, except the two territories South Australia and Victoria where a court judgement can extend to a 15-year limitation for contract debts.
The limitation period gives the creditor or debt collector time to sue a debtor in order to recover the debt. Such debt can become statute-barred once the limitation period expires which means, the debt collector can no longer rely on legal action to retrieve the debt as the receivables are no longer legally enforceable for the creditor.
To be on the safe side, it is always important for the creditor to know when exactly the limitation period starts until the statute limitation prevents him from recovering his debt. The initial date of the timeline depends on multiple factors such as the type of debt, the terms of the contract and the jurisdiction. Most commonly, the limitation period starts once the payment is due or the client failed to meet the terms of the agreement. The limitation period can renew itself multiple times once the debtor makes a payment or acknowledges the debt by means of a written statement. As in some territories, the statute of limitations can begin after the initial period has expired, it is always best for the creditor to work with a profession debt collection agency if it is not clear whether the debt is barred or not.
In all Australian territories except New South Wales, the debt still exists after the statute of limitations. While in New South Wales a debt is completely wiped off after the limitation period, in all the other states the creditor can still make attempts to retrieve debt even if its statute-barred. But collection efforts may be very unlikely, as most debtors know they have no legal obligation once the limitation period for the debt has expired. The creditor then has to fully rely on personal obligation and good business relationship for payment. Furthermore, the attempt to retrieve debt although it is already statute-barred can be a very risky situation regarding the laws for debt recovery.
For any creditor who has missed the chance to file a claim within the statute of limitations, it is highly recommended to seek the advice of a professional debt collection agency to avoid facing legal action himself.