How long do I have to collect a debt?

This is a followup to Prevention is better than cure: avoiding bad debt before it gets ugly.

What if I told you, your business effectively has an infinite amount of time to collect a debt?

You'd probably call me crazy, you might say that's just bad business management, or you might read the rest of this blog.

You actually have 6 years to sue the person to recover that debt. There are three "buts" to this:

1. But, that time limit can be extended if the debtor “acknowledges” the debt. A debt can be acknowledged by the debtor making a payment or stating in writing that they owe the debt. If they have signed a contract and just not paid, the time limit starts from the date of the contract.
2. But, if the debt is secured by a mortgage or "security interest" over personal property, you have 15 years to pursue that debt.
3. But, if you take the debtor to court, and get a court order for the debtor to repay the debt, the time limit to collect the money is only limited by court rules. This could be aninfinite period of time. While the law appears to say you have 15 years to take a court action to recover a debt, because of a quirky legal loophole, no one takes a legal "action" anymore. More common is a warrant to seize property, which under the County Court rules, must be used within 6 years of the court order or your need the courts permission.

Every business has to deal with bad debt. And while it's not ideal that you're chasing money years down the track, the legal time limits at least allow the opportunity to try and recover money with interest.

Our business law team of Lachlan Edwards and Siobhan Liston are available to assist you with collecting overdue debt. If you would like to discuss this further, you can call Lachlan on 0427 916 442 or Siobhan on 03 5445 1067 for assistance.