When is Debt Written Off? (NT)

Debt recovery is a major concern for creditors who have not been paid properly for goods or services. This is particularly a problem for small businesses that can have serious cash flow problems if they cannot collect outstanding invoices. Under federal and territory law, a creditor can usually recover debt through a court order forcing a debtor to sell their assets or garnish their salaries. However, a business must pursue a debt in a timely fashion, as at some point it is no longer legally enforceable. Under the Limitation Act 1981, a creditor in the Northern Territory has a limited window of time to sue a debtor. This legislation establishes that debt is subject to a statute of limitations that differs from other jurisdictions. If a creditor does not pursue a debt before the limitation period expires, a debtor has no legal obligation to pay the debt.

Statute of limitations on debt in the Northern Territory

A statute of limitations on debt refers not to the deadline for collecting the debt, but to the deadline to file a claim in court. The statute of limitations on debt varies according to the jurisdiction and the type of debt. In almost every jurisdiction in Australia, simple contract debt has a limitation period of six years. The exception is the Northern Territory, where the limitation period is three years. However, this is not to say that every debt is written off after three years in the Northern Territory. For instance, court judgments can impact the statute of limitations: if a debtor receives a judgment in their favour, the statute of limitation extends to 12 years.

When does a limitation period start?

A limitation period starts when a creditor has a legal right to commence an action against a debtor. The starting date can depend on various factors, such as the jurisdiction, type of debt and contract terms. In most cases, a limitation period begins when debt comes due or when a debtor fails to meet the terms of a contract agreement. However, a limitation period can reset under some circumstances. For instance, if a debtor provides a written acknowledgement of the debt or makes a payment, the statute of limitations starts anew. The limitation period can reset several times or begin again after the period has expired. Essentially, the limitation period starts from the:

• date the debtor should have made a payment;
• date the debtor last made a payment; or
• the date that the debtor acknowledged in writing their obligation to pay the debt.

Statute barred debt

In the Northern Territory, small debt collection is governed by the Small Claims Act 2016, the Local Court Act 2015, and the Northern Territory Civil and Administrative Tribunal Act 2014. During the limitation period, a creditor has the legal right to sue a debtor to recover the funds. After this deadline, the debt is statute-barred, meaning that the debt is legally unenforceable, and the debtor has a complete defence to a legal claim. However, debt is not cancelled just because a limitation period expires. A creditor in the Northern Territory can still attempt to recover the debt after this deadline. The important distinction is that a creditor can continue to ask for payment for a statute-barred debt. In this circumstance, it is not unusual for a creditor to recoup some funds by selling old debt to a collection company. The collection company effectively becomes the creditor and will contact the debtor seeking repayment. As these debts are often sold for cents on the dollar, a company buying expired debt does not expect to recover an entire debt; rather, it aims to make a profit by recovering a percentage of the debt. Debt recovery companies rely on nuisance power to encourage debtors to repay their outstanding amounts. Still, these creditors must take care that their actions in trying to recover statute-barred debt do not violate the law. A creditor cannot threaten legal action over statute-barred debt or deceive the debtor to make them believe that they have a legal obligation to pay. The creditor may even have a responsibility to inform the debtor of their lack of legal obligation. In addition, once the debtor gives the creditor written notification denying liability on a statute-barred debt, the creditor must cease all collection efforts.

It is important to understand when debt is written off in the Northern Territory. If you need to recover a debt, or if you are being pursued over an expired debt, you can seek legal advice to understand your obligations and the legal options available to you. The team at Go To Court can provide advice on debt collection or the statute of limitation on debt. Please get in touch on 1300 636 846 for advice on this or any other legal matter.