If a debt collector comes along, asking you to pay up for a debt that is more than six years old, it’s especially crucial that you know your rights.
Consider this: You may not have to pay an old debt if your last payment was more than six years ago. In this situation, the debt may be statute barred. This means you may have a defence if someone takes legal action against you.
How can a debt be statute barred?
A debt might be statute barred if:
- You haven’t made a payment for at least six years (note that some debts have a 15 year limitation period – read more to understand your rights);
- You haven’t admitted in writing that you owe the debt; and
- No court judgment has been entered against you.
Most court judgments in Victoria for debts under $100,000 are logged in with the Magistrates’ Court of Victoria. Take note that it is possible that judgment might have been entered in another court or interstate.
You must also be aware that if you make a payment or an admission that you owe the money in writing, the six-year period will start all over again and your debt will no longer be statute barred.
What should I do if the debt collector tells me that judgment has been entered against me?
Then it is of utmost significance that you ask for proof. Don’t merely accept a debt collector’s word for it. If a judgment has been made against you, you should have received court documents letting you know that the debt collector or lender had initiated legal proceedings.
If action is taken in the Magistrates’ Court, this document is called a Form 5A or a Complaint. The Complaint is served with two copies of the form on which you can complete your defence and warns you that you have only 21 days in which to do this or an order may be made against you.
What should I do if someone says that I have to pay an old debt?
If you believe that it might be more than six years since you last made a payment on the debt, or acknowledged the debt in writing and you are not aware that any court judgment has been made against you, take note of these:
- Don’t make a repayment;
- Don’t agree that you owe the debt;
- Do get advice immediately; and
- Do ask the debt collector or lender to provide copies of the loan contract and the account statements.
In what situations does the six-year time limit not apply?
The creditor can collect the debt even if over six years has passed if:
- The debt relates to a mortgage over property (such as a house or car) in which case a 15 year limitation period applies; or
- There is a court judgment that states a debt is owed.
If a lender had a mortgage over your house or other property and it has been sold and you still are indebted; the lender might assert that the six-year limitation period does not apply. This is a complicated issue with getting legal advice from the professionals being a recommended course of action.
What should I do if I get contacted regarding an old debt?
Unless you are quite sure the debt isn’t statute barred, do not admit to the debt or make any payment. However, you should request that details of the debt being claimed should be placed in writing, and ask the lender or debt collector to stop any legal action until after the information is provided.
In your letter, ask the lender or debt collector to provide:
- Copies of the contract if you don’t have a copy;
- Copies of relevant account statements; and
- Details of any court judgments.
You should specifically include a sentence in the letter saying that you “do not admit that you are liable for the alleged debt.” If you have already received a court document, you should immediately lodge a complaint with the relevant external dispute resolution scheme.
If you are having trouble managing your finances (and these days, who isn’t?), perhaps tapping the help of a professional would help. Here’s where the help of a financial planner can possibly get you and your finances on track.