Debt collection guideline: for collectors and creditors

20. Representations about the legal status of a debt—including statute-barred debt

  1. This section should be read with part 2, section 19, Representations about the consequences of non‑payment and section 21, Legal action and procedures.
  2. You should not state or imply that legal action will or may be taken when a defence at law applies. Among other defences, a debtor will be able to claim a defence if:
    • the debtor has been declared bankrupt72 and the debt(s) is unsecured
    • the right to pursue the debt in court has expired due to the passing of time. This time limit varies from state to state, but is usually six years (three years in the Northern Territory) from the date the right of action accrued or the debt was last acknowledged by the debtor (for example, by making a payment).
  3. Representing that legal action will or may be taken when a debt is statute-barred may be misleading or deceptive. Such representation may also be unconscionable when the debtor has not had the opportunity to obtain legal advice.

CASE STUDY

An unemployed mother of a deaf, dependent child was contacted by a debt collector who questioned her about her personal and financial circumstances.

The collector implied that legal proceedings may be instituted if no payment was made on a debt of $10 000 that, unknown to the debtor, was statute-barred. The court found the collector’s conduct to be unconscionable and noted that the circumstances were sufficient to require the collector to establish that the transaction was fair, just and reasonable—which the collector did not do.

The court ordered that the debtor did not have to pay the debt and instead, that the creditor return the monies paid by the debtor.

Collection House v Taylor [2004] VSC 49


72 Alternatively, the debtor has entered into a Part IX debt agreement or a Part X personal insolvency agreement under the Bankruptcy Act: see part 2, section 16, Contact following bankruptcy.

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