A statute barred debt is one for which the applicable limitation period — typically six years from the date the cause of action arose — has expired. Once that period expires, the creditor loses the right to sue for the debt in court. The debt itself is not extinguished — it still exists as a moral and financial obligation — but the creditor's ability to enforce it through litigation is gone.
This distinction has practical consequences both for what creditors can do and for what they must disclose when they take action on a statute barred debt.
What creditors can still do
A creditor holding a statute barred debt can:
- Continue to request payment: asking a debtor to pay a statute barred debt is not illegal, provided the request does not mislead the debtor about the existence of any legal right to sue.
- Accept voluntary payment: if a debtor voluntarily pays a statute barred debt, the payment is valid.
- List the default on a credit bureau: commercial credit defaults can be listed independently of the limitation period, subject to the bureau's own rules about the age of information they will accept. This can provide practical leverage — the listing may affect the debtor's ability to obtain credit from other suppliers.
- Set off the amount against future obligations: if the debtor subsequently owes the creditor money on a different transaction, it may be possible to set off the statute barred debt against that amount, subject to equitable rules on setoff.
What creditors cannot do
A creditor cannot: commence court proceedings to recover a statute barred debt; threaten litigation to recover a statute barred debt (this would be misleading and potentially in breach of the Australian Consumer Law); or misrepresent to the debtor that they have a legal right to sue when they do not.
The disclosure obligation
ASIC's regulatory guidance and the ACCC's debt collection guideline make clear that when collecting a statute barred debt, a collector must not mislead the debtor about their legal rights. If a debtor asks whether the creditor can sue, the honest answer — that the limitation period has expired — must be given. Implying a legal right to sue that does not exist is a breach of the Australian Consumer Law.
Revival of the limitation period
In most states, a written acknowledgment of a statute barred debt by the debtor, or a part payment, can revive the limitation period — starting a new six-year period from the date of acknowledgment. This is technically possible but practically difficult to engineer: inducing an acknowledgment for the specific purpose of reviving the limitation period may itself be challengeable.
Contact Merion if you have aged debts that may be approaching or past the limitation period — we can advise on what options remain and how to pursue them compliantly.