What is the statute of limitations?
A simple explanation is that the statute of limitations is a deadline imposed on a person that wants to take legal action against another person who owes them money. In this particular case, a “person” could mean an individual running a business or a company. This legal restriction means that the person loses the privilege of filing legal action for the collection of debt once the statute of limitations has expired. At that point, it does not matter if you have a strong case or even if you have suffered damages – your ability to initiate legal proceedings has forfeited and becomes known as a ‘statute-barred debt’ impossible to recover.
Statute of limitations is handled and classified slightly differently depending on the state or territory in Australia. An example of this is in New South Wales, whereby a debt is completely disposed when the limitation period has finished, whilst in other States and Territories across Australia the debt will remain, however there won’t be any further legal grounds to pursue the remaining debt owed.
So what are the timeframes imposed?
For contracts like unsecured loans, credit cards and any other debts that majority of collection companies will pursue for example, the limitation period is six (6) years for all States expect for Northern Territory, which is only three (3) years. However when a specific case follows a court decision, the statute of limitation period is slightly longer – twelve (12) months for all States and Territories except for Victoria and South Australia, which impose a fifteen (15) year period.
To know more about the specific State and Territory Statute of Limitation laws across Australia, you may want to visit the respective government legislation websites. Here you’ll be able to completely understand what laws apply to you in your unique situation and what you need to know prior to pursuing a particular bad debt.
When does the Limitation Period begin
Generally, the statute of limitations period starts from the time the invoice or debt becomes overdue, however there are certain circumstances where the limitation period may be reset. This could occur if; your debtor accepts the debt in writing, makes payment or enters into an agreed payment plan with the creditor, to which point the limitation period starts again. Having said that, resetting of a limitation period is completely determined by jurisdiction. For example, in Queensland, South Australia, Western Australia & Tasmania, the limitation period can be reset continually, rather than in New South Wales, ACT and Northern Territory you’re unable to reset once it has expired.
Collecting debts after limitation period has expired
It’s important to abide by the law no matter if you’re conducting your own debt collection or outsourcing to professional debt collectors. This includes misleading debtors to thinking they are legally bound to pay the debt even after the statute of limitations has expired. As laws do vary between States and Territories in terms of how ‘statute-barred debts’ can be pursued or collected, it’s important that either yourself or a collection agency openly inform the debtor that the limitation period has expired and not mislead them into thinking the debt is still current.
If a statute-barred debt has been collected, potential legal action against either creditor or collection agency can arise, as this would raise suspicion and indicate illegal collection practises have taken place. If this was brought to the courts attention, you would need to convince a court with supporting evidence that the transaction was conducted ethically and in compliance with local legislation.
If you have trouble with slow payers or bad debt and would like to know more about Australian laws relating to debt collection agencies, you may like to visit Marshall Freeman and speak with a collection specialist today!