Did you know that there is a limited amount of time that you can pursue an outstanding debt? That’s right, after a period of time, a debt that is owed to you, by a customer or client, can be completely wiped and they are no longer legally obligated to pay it back to you.
This is why, besides being a big help to your cash flow, it’s important to start your debt collection process sooner rather than later when your customers have outstanding debts. If your business doesn’t have a strong accounts process or debt collection system in place, it’s definitely time to get one – which you can learn about here.
Today, we’re going to talk about when debts can be wiped and what you need to know. So, keep reading to learn more about time limits and debt chasing.
Can debts really be wiped?
The simple answer to this is yes – from a legal point of view.
Debts are subject to a statute of limitations – like many legal matters – which means that there is only a certain amount of time that it can be pursued for using legal intervention. If the time limit expires, then the debtor is no longer legally obligated to pay it and the creditor cannot take any legal actions in pursuit of the debt and the debt is considered a statute barred debt.
There are certain factors that can change the circumstances of the limitation periods and the collection of the debt which we will explain further on.
There is a complicated answer to this though. While debts can technically be legally wiped, the debt can still be pursued, you just do not have any legal avenues, such as court claims, to retrieve the debt at your disposal.
What is the statute of limitations for debts in Australia?
When it comes to legally pursuing debts in Australia, the statute of limitations (time period) for the debt does vary depending on the state you’re in and the type of debt.
The most common debt type, which is a simple contract debt and can be anything from credit cards to business debts, has a limitation period of 6 years for all states and territories in Australia, except for the Northern Territory – the statute of limitations period is only 3 years.
We touched on this above, but it’s important to note that the statute of limitations is about the limitation on your ability to bring about legal action to have your debt recovered. It’s not to say that you can’t pursue the debt at all after this point, your ways in doing are just more limited.
Court Judgements and debts
If you have gone to court in the pursuit of a debt, the limitation period before the debt becomes statute barred may end up being extended.
If the judge orders a debt to be paid, the court judgement may result in the statute of limitations being reset and the period being extended to 12 years in all states and territories, except for Victoria and South Australia, where the period is extended by 15 years.
When does the limitation period countdown begin?
The limitation period essentially starts from the point where the debt is overdue, so this can be the day after the debt was due or when the debtor has not met the terms of the agreement – which can include missing a payment in a payment schedule.
In some states and territories, if the client acknowledges the debt in writing or makes a payment towards it after the commencement of the limitation period, then the limitation period can be reset. So, from the point of the last payment or the acknowledgement of the debt in writing, you have the entire limitation period to pursue legal action if you require it.
As the rules around resetting the limitation period does vary by state, it is a good idea to review the relevant limitation act for your region.
Once a debt is statue barred, is it really gone or can I attempt to collect it?
Not all hope is lost if you’re the one who the debt is owed to – as long as you’re not in New South Wales. New South Wales is the only state where once the limitation period is reached and the debt becomes statute barred, it can no longer be recovered as the debt is considered cancelled.
For residents in every other state, once the debt becomes statute barred it does still exist, it’s just that nothing can be legally enforced to recover it.
So, because the debt does exist, it can be pursued, however, this has to be done carefully as the you are not able to take any legal action, you can only simply ask for payment.
Unfortunately, while you can ask for the payment, the chances of recovery of a statute barred debt in Australia are very slim. Which is why it’s important to get help with recovering debts as early as possible.
What should I do if someone owes me money?
If you find yourself in a position where you are owed debt from a customer or client the best thing you can do is to take steps to recover that debt.
Whether you have a debt collection process of your own in place or you’re not sure what to do, you don’t want to wait until it’s too late.
While we might be a little bit biased, we think engaging with a debt collection expert, like us here at JMA Credit Control, is one of the best ways to go. That’s because we can get the ball rolling using our tried and true debt recovery techniques.
At JMA, we have more than 50 years of experience, working with small and medium sized businesses in debt recovery. We have worked hard to create processes that are successful and make it possible to actually recover debts. Our aim is to help you avoid losing your money or ending up in a position where you have no legal rights in pursuing a debt, like when it becomes statute barred.
We can also offer you honest advice and help you manage your credit processes too. We’re here to help business owners anywhere in Australia.
Call us today on 1300 664 223 to chat all things debt collection.