How Long Do You Have to Recover a Debt in NSW? Limitation Periods Explained

How Long Do You Have to Recover a Debt in NSW?

Limitation Periods Explained

If someone owes you money in New South Wales, there is not an unlimited amount of time to take legal action. The debt limitation period in NSW depends on the legal basis of the debt, when the cause of action arose and whether anything has happened since that affects the calculation.

For many ordinary contractual debts, the general limitation period is six years. However, that does not mean every creditor simply has six years from the invoice date. Different rules can apply to debts arising under deeds, existing court judgments and matters involving a legally effective acknowledgment or payment.

For creditors, identifying the correct deadline early can be critical. For debtors, an old demand should not automatically be assumed to be either enforceable or statute barred without examining the history of the debt.

What Is a Debt Limitation Period?

A limitation period is the period within which legal proceedings must generally be commenced for a particular cause of action.

In NSW, these periods are principally governed by the Limitation Act 1969 NSW.

The important point is that limitation periods normally run from a legally significant event, such as when a cause of action first accrues. Determining that date can require more than checking when an invoice was issued.

For a broader explanation of letters of demand, court proceedings and enforcement, see Golottas Solicitors’ guide to the debt collection process in NSW.

What Is the General Limitation Period for Debt Recovery in NSW?

Section 14 of the Limitation Act provides a six-year limitation period for various causes of action, including causes of action founded on contract that are not founded on a deed. The six years runs from when the cause of action first accrues.

This commonly captures contractual debts such as unpaid accounts, loans and amounts due under commercial agreements.

However, “six years” should not be treated as a universal answer to the question how long can a debt be chased in NSW. The legal character of the debt and the events surrounding it must still be checked.

When Does the Six-Year Period Start?

This is often the most important part of a debt limitation analysis.

The limitation period does not necessarily start when an invoice is created, when goods are supplied or when the creditor first decides to pursue payment. Under section 14, the relevant question is when the cause of action first accrued.

For a contractual debt, this will often involve identifying when payment became legally due and when the debtor failed to perform the relevant obligation.

Contract terms can therefore matter significantly. A contract may require payment immediately, within a specified number of days, on completion of particular work or according to an agreed repayment schedule.

An invoice due 30 days after issue, for example, should not automatically be treated as having the same accrual date as the invoice itself. The contract and circumstances need to be examined to determine when the creditor first had an enforceable claim for non-payment.

Repayment agreements, instalment arrangements and loans with specified repayment dates can make the analysis more complicated.

Using the wrong starting date may result in a creditor believing there is still time to commence proceedings when the limitation period has already expired.

What If the Debt Is Under a Deed?

A different period can apply where a cause of action is genuinely founded on a deed.

Section 16 of the Limitation Act provides a twelve-year limitation period running from when the cause of action first accrues for an action founded on a deed.

This distinction can be important where significant commercial obligations have been formally documented.

However, a document should not simply be assumed to be a deed because it uses that word in its title. Whether it has been validly executed as a deed and whether the particular cause of action is founded on the deed should be checked before relying on the longer limitation period.

What If a Court Judgment Has Already Been Obtained?

An unpaid contractual debt and a debt that has already been reduced to judgment are not the same thing for limitation purposes.

Section 17 provides that an action on a judgment is not maintainable after a twelve-year limitation period running from the date the judgment first becomes enforceable.

The NSW Local Court explains that once a judgment or default judgment is made, an unpaid judgment amount may be enforced through procedures such as garnishee orders, examination processes and writs for the levy of property.

The precise enforcement procedure should still be checked rather than assuming every enforcement step can simply be taken at any point within twelve years.

Can Acknowledgment or Part-Payment Affect the Limitation Period?

Yes, but this area is commonly oversimplified.

Section 54 of the Limitation Act deals with confirmation of a cause of action after a limitation period has begun to run but before it expires.

A person can confirm the cause of action by acknowledging the relevant right or title, or by making a payment in respect of it. For an acknowledgment to qualify under the section, it must be in writing and signed by the person making it.

Where the statutory requirements are met, time that ran before the confirmation may not count towards the limitation period.

This is why it is inaccurate to say that “any payment automatically restarts the six years”. The nature and timing of the payment or acknowledgment, the parties involved and whether the statutory requirements are satisfied all matter.

Section 54 operates in relation to confirmation occurring before the applicable limitation period expires. An old debt should therefore be reviewed carefully rather than assuming a recent conversation or payment has automatically revived it.

What Happens When the Limitation Period Expires?

The NSW position is particularly important here.

Under section 63 of the Limitation Act, subject to statutory qualifications, when the applicable limitation period expires for a cause of action to recover a debt, damages or other money, the creditor’s right and title to that money is extinguished as against the person against whom the cause of action lay and their successors.

Accordingly, describing a statute barred debt in NSW as merely an old debt that becomes more difficult to sue for can understate the effect of the legislation.

However, whether section 63 applies requires the correct limitation period and expiry date to have been identified first. A debtor should not assume that a demand relating to an old transaction is necessarily outside time.

Examples of How Debt Limitation Deadlines Can Differ

Unpaid business invoice

A business supplies services and issues an invoice requiring payment within 30 days. The relevant limitation analysis may focus on when payment became contractually due and when the failure to pay gave rise to the cause of action, rather than simply counting six years from the invoice date.

Obligation documented by deed

If the relevant cause of action is genuinely founded on a valid deed, section 16 may provide a twelve-year period rather than the six-year contractual period.

Judgment already entered

Where court proceedings were commenced and judgment was obtained, the analysis changes. Section 17 addresses actions on judgments, while actual enforcement steps are governed by the relevant court procedures.

These examples are illustrative only. Small differences in documentation and payment history can change the legal analysis.

Why Creditors Should Review Older Debts Early

Creditors should avoid waiting until they believe a limitation deadline is only weeks or days away.

Before deciding what recovery action is appropriate, it is useful to identify the correct debtor, locate the underlying contract or agreement, confirm when payment became legally due, review invoices and correspondence, check the payment history and identify any relevant acknowledgments or part-payments.

Early review also leaves more time to consider commercial resolution before court proceedings become necessary.

Golottas Solicitors’ debt collection and recovery service provides further information about the options available where money remains unpaid.

What Should Debtors Know About Older Debts?

Age alone does not establish that a debt is statute barred.

A person being pursued for an older debt should review when the alleged obligation arose, the agreement relied upon, payment history, correspondence and whether a court judgment has previously been obtained.

Particular care may also be appropriate before making written admissions about an old or disputed debt because acknowledgment and payment can have legal consequences in some circumstances.

If the applicable limitation period or starting date is unclear, obtaining advice before making assumptions can help establish the actual legal position.

Final Takeaway

For many ordinary contractual debts, the debt recovery limitation period in NSW is six years from when the cause of action first accrues. But that is only the starting point.

Debts founded on deeds, existing judgments, contractual payment terms, acknowledgments and part-payments can produce a different analysis.

If a debt is old, disputed or approaching a possible limitation deadline, the safest approach is to review the agreement, payment history, correspondence and relevant dates before deciding what action to take.

To have a debt recovery matter assessed, you can make an enquiry with Golottas Solicitors.