This fact sheet is for information only, and applies to NSW. It is recommended that you get legal advice about your situation.
A debt collector contacted Antonino about an old debt. Antonino had not made a payment on the debt being claimed for over 10 years. The debt collector told Antonino he owed the debt and he had to pay.
Antonino decided to get some advice before paying the debt collector, Antonino rang Consumer Credit Legal Centre (NSW) to get some advice on whether he had to pay. The solicitor told Antonino that as long as he did not have a court judgment, the debt was “statute barred” as it was more than 6 years old. This means that Antonino has a complete defence to the debt under the Limitation Act (NSW).
WHAT SHOULD I DO IF SOMEONE SAYS I OWE AN OLD DEBT?
- Make a repayment
- Confirm in writing you owe the debt
- Get legal advice immediately
- Ring the debt collector/creditor and tell them that the debt is disputed as it is statute barred (which means it is more than 6 years old).
- Ask the debt collector/creditor to provide copies of the contract and account statements.
WHEN IS AN “OLD DEBT” NO LONGER RECOVERABLE?
The Limitation Act 1969 (NSW) places time limits on the rights of a creditor to bring an action for the recovery of debts.
In most cases a creditor or a debt collector must recover the debt, or commence court action to recover the debt, within 6 years of:
- the date on which the debt first arose or
- the date you last made a payment or
- the date you acknowledged the debt in writing
The 6 years runs from whichever event from the above list occurs last.
If the creditor does not commence court action within the six years, you will have a complete defence to the debt. There is nothing to prevent the creditor commencing court action, it is up to you to raise the Limitation Act defence, if it applies.
Some examples to explain appear below:
- Example 1: Sarah stopped making repayments on her credit card around 5 1/2 years ago. A debt collector contacted her and threatened to commence court action if she does not pay. As she is afraid of court action she makes a small repayment (which is all she can afford). The 6-year time limit begins to run again from the date of that repayment.
- Example 2: Kim stopped making repayments over 6 years ago. The creditor contacts Kim to recover the debt. Kim got legal advice and discovered that he now has a defence to the debt under the Limitation Act (NSW).
There are some debts where the creditor or debt collector has 12 years to start court action. These include:
- Mortgages (e.g. home or car loans where the home or car or some other item has been used as security)
- Deeds. These are sometimes used for mortgages or guarantees.
If you are contacted about an old debt:
- DON’T make a repayment or acknowledge the debt in writing
- Get legal advice about a possible defence under the Limitation Act (NSW)
HOW DO I WORK OUT IF I HAVE A LIMITATION ACT DEFENCE?
You should write a letter to the creditor or debt collector immediately:
- Requesting copies of all relevant account statements. For example, if you remember making the last repayment over 6 years ago, account statements should be requested from before that date until the present;
- Requesting copies of all demand letters;
- Requesting details of any Court Judgments;
- The letter should state that the alleged debt is disputed on the basis it is statute barred under the Limitation Act (NSW)
- Be very careful not to acknowledge the alleged debt in the letter;
- Make sure you use the term “alleged debt” to avoid acknowledgment;
- The letter should request a stay of all legal action for 28 days after the requested information is provided.
A Sample Letter for you to use can be found at Sample Letter: To Debt Collector (Old Debt).
When this information is provided you should get legal advice. If it turns out that the creditor/debt collector has a court judgment against you, then they have a further 12 years from the date of the judgment to enforce the debt. For more information on what this means see Fact Sheet: Enforcement of Debts in the Local Court.
WHAT CAN I DO IF THE DEBT COLLECTOR STARTS COURT ACTION AGAINST ME?
If you receive a Statement of Claim you have two possible options:
- If the plaintiff (the company suing you) is in the independent External Dispute Resolution (EDR) scheme then you can lodge a dispute with the Australian Financial Complaints Authority (AFCA). See Fact sheet: Dispute resolution. If you can lodge in EDR this will stop all legal action until the matter is dealt with by AFCA. If this option is available, this is the best option.
- File a defence within 28 days of receiving the Statement of Claim. If the debt is statute barred it will be up to you to inform the court of the relevant facts. Get legal advice first – if you lose in court you may have to pay the other side’s court and legal costs. – See Fact sheet: Getting help.
NEED SOME MORE HELP?
See Fact sheet: Getting help for a list of additional resources.
Last updated: September 2019.