/What Does Statute Of Limitations Mean in Debt Collection?

What Does Statute Of Limitations Mean in Debt Collection?

Bad debt is a problem for businesses as unpaid dues often lead to restricted cash flow, which prevents the growth of the company. To many Australian businesses, it may come as a surprise that debts have an expiration date, known as the statute of limitations, and must be pursued within a certain time frame. In other words, debt can only be recovered if the creditor meets requirements within a certain time period. A ‘statute barred debt’ means that the limitation period has expired and it becomes impossible to take action to recover it. The jurisdiction in which the debt has occurred is significant, since the time limits vary across the Australian Territories.


As positive cash flow is essential for any business, it is advisable to involve a debt collection agency early in the process to retrieve receivables within the time limit in which legal action can be taken to collect a debt. A debt collection agency can play a vital role for the wellbeing of a business as its services ensure that receivables are collected within the shortest time possible and furthermore spare internal human resources, which can be used for business growth.

National, territory and state laws govern the statute of limitations in which legal action to claim debt is permissible. We have put together some facts regarding statute barred debt and debt collection for better understanding.


What is statute-barred debt?

Once a debt becomes overdue, the creditor is allowed to sue the debtor within a certain period of time, also known as the ‘statute of limitation’. Debts, which have not been retrieved within the statutory limitation period, can no longer be legally pursued and are referred to as statute-barred debts. There are different limitation periods depending on the Territory how long a debt can be pursued and consequences whether it expired fully or remains but cannot be claimed anymore.


What is the limitation period?

Except in the Northern Territory, for most debts, the limitation period is six years for all States. In the Northern Territory, the time to collect debt legally is only as short as three years. The limitation period extends to 12 years for all Territories once a debt follows a court judgement, except Victoria and South Australia benefit from a 15-year period. The appropriate state government legislation website will provide detailed information in the event of specific questions or ask a reputable collection agency.


When does the limitation period begin?

Once a debt becomes overdue, this is most common when the limitation period starts. This period can be reset if the debtor reacts to the claim in writing or even settles a payment. In the case of this event, the limitation period starts once more depending on the jurisdiction. Territories such as Tasmania, Western Australia, Queensland and South Australia make it possible to reset the limitation period time and again, whereas the Northern Territory, New South Wales and the Australian Capital Territory do not grant a reset once the limitation period has expired.


What are the consequences if collection activity happens after the expiration of the limitation period?

Creditors and hired debt collectors should, by all means, avoid making statements, which mislead the creditor into thinking legal action, is still allowed in order to claim current debt once the limitation period has expired. In some parts of Australia, the debtor must be informed about the expiration of the time period with specific Territories having certain rules and restrictions how such statute-barred debt might still be collected. New South Wales, for instance, is the only Territory where debt is completely cancelled after it expires.

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