By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.
When life gets busy, sometimes we put off important jobs to deal with more pressing matters. But when it comes to debt collection, this can only be put off for so long before debts become ‘statute barred‘. At this point the debts the subject of debt collection are no longer capable of being collected.
Most States and all Territories have time limits within which debt collection must be completed. In New South Wales, if too much time passes and the limitation period expires, section 63 of the Limitation Act 1969 (NSW) extinguishes the debt, meaning recovery of the debt is no longer possible..
In NSW, as in most states, the debt collection clock generally starts running from the date the cause of action first accrues. This is often the date of default; when the debtor fails to repay the debt, although there are some traps for the inexperienced in debt collection (for instance debts without a due date or which are ‘at call’). Once a default has arisen the creditor then has 6 years to commence the debt collection process formally, after which time the legislation restricts recovery, the debt becomes statute barred, and debt collection almost certainly impossible.
However, it is possible to reset the clock in certain circumstances, depending on what takes place during the 6 year period. A few examples of events which may reset the debt collection clock include:
- The debtor makes a payment (including a part payment) to the creditor;
- The debtor and creditor enter into a payment arrangement (see our recent blog about payment arrangements here);
- The debtor acknowledges (or taken to have acknowledged) that the debt is owing; or
- The creditor has negotiated a discount with the debtor.
There are some advantages to pursuing debt collection, at least to judgment, even if it is not presently intended to pursue debt collection measure further. Limitation periods still apply to debt collection after obtaining a judgment, however they are generally much longer (in NSW 12 years generally). This may enable a savvy creditor to ‘park’ debt collection until there appears a greater likelihood of recovery.
However it should be noted that a shorter period applies to debt collection via bankruptcy even though the judgment debt is still enforceable. Although not statute barred, pursuing a debt using a bankruptcy notice as the basis for a bankruptcy creditor’s petition will no longer be possible. However patient creditors need not despair, the clever debt collection lawyer has tricks that may be able to assist with debt collection of old judgment debts even these circumstances.
It is important to understand the limitation periods in your State or Territory before commencing debt collection, or before deciding to put off debt collection for a later date.
At Matthews Folbigg Lawyers, our debt recovery team can advise you on the best process for debt collection, and assist with any queries about limitation periods.
If you would like more information or advice on this area, please contact a Principal of Matthews Folbigg Insolvency, Restructuring & Debt Recovery Team:
Jeffrey Brown on (02) 9806 7446 or firstname.lastname@example.org
Stephen Mullette on (02) 9806 7459 or email@example.com.