Statute of Limitations – Do You Have To Pay Old Debts?

Struggling with debts is never easy, especially if you’ve had those debts for a long time. Most are aware that you could face legal action or intervention by your creditor if you fail to pay debts in time. However, do you have to pay old debts? Is there a limit to how long you can be on the hook for these?

For businesses that lend to consumers, it’s important for them to ensure they get their money back. That means if you fail to pay your debts on time, they have a legal right to reclaim that debt through a number of methods. 

That being said, there is a limit on how long they have to act. There is a statute of limitations on old debts, and they can’t go after these debts after a certain period of time has passed. If you discovered an old debt, odds are you may no longer have to pay. Does that mean you shouldn’t ever pay any debt, waiting out the clock instead? In this guide, we’ll explain the statute of limitations for old debts to determine when (and if) you have to pay. 

What Is the Statute of Limitations?

You likely have heard of the statute of limitations on other legal matters. This term can be confusing, but it simply means there is a time limit for the individual (or victim) to take action after a crime has been committed. For instance, if you get robbed, you can’t go after the perpetrator half a century later for that crime. Simply too much time has passed. 

This is true of debts as well. 

In this case, the “victim” is the lender. If they lent you money and you failed to pay, they have a specific period of time when they’re entitled to legal action. Outside of that timeframe, they’re mostly out of luck. 

However, there is no single statute of limitations across the board. You’ll have to pay old debts according to the specific laws in your Australian jurisdiction. In addition, you’ll also need to consider the type of debt. 

While you should talk to a debt professional about the rules in your specific location and regarding your type of debt, this is generally around 6 years. In the Northern Territory, this statute of limitations is only 3 years, but this is an exception, not the norm. 

Note that this is not a deadline for collecting a debt. This is a deadline for filing a claim with legal courts. A filed court judgement can still be filed in favour of the lender or the creditor even after the time frame passes depending on the situation. 

What Happens After the Statute of Limitations?

Before the statute of limitations period begins, your creditor is legally permitted to sue or take other legal action to recover the debt. Since most lenders are banks or other large institutions, they often have their own departments for handling these affairs. They usually act as soon as the debt goes into default which can be as quick as within 30 days to a few months. 

However, what happens after the statute of limitations? After this period of time, the debt becomes what’s called “statute-barred.” This means the creditor can no longer take any legal action to recover their funds. They could attempt to file a claim, but this is not legally enforceable. 

When Does the Limitation Period Begin?

A lot of people understandably have a hard time understanding when the statute of limitation period begins. The starting date depends on a number of different factors, so it isn’t always clear cut. 

Most of the time, the limitation period starts as soon as the debt is due. In some cases, it starts when the individual fails to pay on time or meet other agreement terms. 

If you make a payment within the limitation period, this usually restarts the entire limitation period once again. This process is designed to make it simpler for creditors to recover the money owed to them. 

What Happens to the Debt?

So what actually happens to the debt after the statute of limitations? Again, it depends on your location. In New South Wales, the debt actually ceases to exist. It’s completely cancelled. Otherwise, in all other Australian territories, the debt still exists but it is no longer enforceable. 

While lenders can still try to recover their funds, they are limited in options. They can’t threaten any type of legal action, and they can’t mislead you into thinking you have an obligation to pay. Recovery of these debts is highly unlikely.

Can I Intentionally Take Longer to Pay My Debts?

After learning about these laws around the statute of limitations on debts in Australia, it’s easy to think that you should take your time with your debt payoff process. If debts essentially become unenforceable after 6 years, why bother paying or making a debt arrangement at all?

While this might be true, this is simply not a practical option. 

The longer you take to pay your debts, the more likely this will negatively affect your credit score. You could face a number of negative actions:

  • Legal action – First, the lender could take legal action. It is common for the lender to take any legal action once a debt goes into default. The courts could enforce a debt repayment through seizing your property or filing a judgement against you. 
  • Debt collector – Because collecting these funds takes time (and money), many lenders sell debts to debt collectors. These companies will take on predatory practices to go after debts, leading to ongoing annoyances and even harassment. 
  • Credit score – Failing to pay your debt will plummet your credit score if you’re not careful. This could make it hard to find housing or secure a loan in the future. 
  • Higher interest and fees – Many lenders add additional repayment fees or increase your interest rate if you fail to pay on time. 
  • Court – Sometimes, you might be asked to appear in court for your debts if legal action is taken against you. At this step, you might need an attorney or stronger legal defence. This can be expensive and time-consuming. 
  • Bankruptcy – Finally, you could be forced into bankruptcy if you’re unable to pay your debts. While this will release you from most debts, it will also impact your financial future. 

It’s always better to pay on time and to create a strong debt payoff strategy. Though it might sound challenging, there is always a way forward towards a brighter financial future. No matter your long-term financial goals, make sure you have a plan to handle your debts. 

Understanding your rights when it comes to your debts is always important. You should be familiar with the Australian statute of limitations surrounding debt so you know if you have to pay old debts. However, use this knowledge to your advantage by managing your debts properly in the first place. 

I Can’t Pay My Debts, What Do I Do?

If you find yourself unable to pay your existing debts, you have options. You don’t have to hide or get a new identity and wait for the statute of limitations to pass. While it’s vital to know your rights, it’s unlikely the lender won’t try to take legal action to recover their debt. Remember, they’re in the business of making money! 

Don’t panic if you find yourself struggling to pay your debts on time. Not only are there trusted financial advisors who are equipped to help you find the right path forward, but there are more debt solutions than you think. 

Depending on your type of debt, credit score, and financial plan, you might be able to consolidate, enter a debt negotiation, or work out an informal payment arrangement. Most importantly, you can create a long-term debt payoff strategy that is realistic and actionable. Nobody should feel trapped under their own debt. 

Your debt payoff journey starts with a single step forward. Now that you’re educated about the statute of limitations and whether you have to pay old debts, you’re ready to take action. No matter your credit, debt type, or financial situation, there’s a debt solution built for you.

Create an Action Plan for Old Debts

If you’ve just discovered old debts or you’re wondering whether the Australian statute of limitations applies to you, talk to our experts. At Debt Busters, we have over 15 years of experience helping Aussies take back control of their financial futures. 

The statute of limitations isn’t always clear. You might have old debts you don’t know about, but do you really have to pay? If enough time has passed, then probably not. Still, lenders are in the business of making money. They’re typically willing to go quite the distance to make sure their debtors pay them what they’re owed. 

Luckily, you don’t have to face these creditors alone. Our skilled professionals are here to help you every step of the way. From creating a new budget to discussing how to move forward with your current debts, we’re here to shine a light forward. Give us a call today on 1300 368 322 to start your new financial future.

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