Home Loan Blog

What is a Zombie Debt?
The statute of limitations puts a cap on the time a creditor has to collect on your unpaid debt, 6 years in each state and territory, 12 to 15 years (depending on the State & Territory) for Judgment debts. In other words, if 6 years passes without a payment on the loan, it could be statute-barred and it cannot be collected by your creditor.
The Limitations Act NSW 1969, was written to protect the consumer from being trapped by old unsecured debt, crammed with interest which could perpetuate for decades. Interesting, like much of our laws, the statute-barred principle is rooted in the Hebrew Bible where Israel were required to forgive all debts every 7 years.
Important facts to remember:

  1. If you make a payment, the 6-year statute period could begin again
  2. If you admit the debt in writing, the 6-year statute period could begin again
  3. If your creditor secures judgment against you in court, your creditor will have 12 to 15 years to collect the debt (depending on the State or Territory).

If you think your debt maybe statute-barred, be careful, it could be complicated, even hazardous to find out if you’re responsible for paying your old debt -a simple phone call to your creditor could potentially lead to nullifying the debts statute-barred status!
What to do
If you suspect your account has reached the limitations period, or close to, chances are your debt will no longer be with the original bank, but long since been sold to a debt collection agency. The agency won’t know where you are otherwise, they’d be contacting you years ago to collect the debt.
Approximately 6 to 12 months prior to the limitation’s expiry period, the debt collectors will begin a ‘skip tracing’ processes to track you down. ‘Skip tracing’ is a crudish term debt collectors use for debtors who have ‘skipped’ from their debts.
If they reach you, they will press you to make a payment, on threat of legal action, to begin the 6-year limitations term again, even a $5 payment could achieve this.
Your first step will be to reach-out to a professional who can properly represent you without risking the renewal of the limitation period. Many people have unwittingly renewed their close-to statute barred debts because they did not know how to deal with the situation, thus resurrecting their zombie debt.
A specialist, like a financial negotiator, will safely confirm the statute-barred status without exposing you to any risks. If your account is not statute-barred, the negotiator will facilitate a safe financial outcome that will best suit your circumstances.
If you want to handle this yourself, be very careful, you could unwittingly ‘reset’ the debt to 6 years again. You want to find out when your last payment was made from the creditor, as you’ll have to calculate if your 6 years is up, don’t take their word for it, ask them to provide evidence.
If your close to being statute-barred, the creditor will be especially assertive in seeking a payment or proceeding with legal action.
If you think you have a zombie debt, reach-out to us to seek more information on your options on 1300 490 030 or info@creditmediation.com.au.
This article should not be interpreted as legal advice. If you are seeking specific legal guidance, please speak to a legal professional for more information on your legal rights.
Source: Credit Mediation Services