Key details on debt recovery timelines, what happens if debt exceeds these limits, and when it may be beneficial to seek legal advice
In New Zealand, most debts can legally be chased for up to six years, as set by the Limitation Act 2010. This six-year timeframe begins from the last acknowledgment of the debt or the most recent payment. After this, debts generally become “statute-barred,” meaning creditors cannot use court action to force repayment. However, there are some exceptions, particularly for certain types of debt.
Breaking Down the Six-Year Rule
The six-year rule applies to most common types of debt in New Zealand, including:
- Personal loans
- Credit card debt
- Medical bills
- Utility bills
- Hire purchase agreements
Once the last payment or acknowledgment of the debt occurs, the six-year period starts. If a payment or acknowledgment happens within these six years, the timeline restarts from that point. Even a small payment or written acknowledgment can reset this period, giving creditors another six years to pursue the debt legally.
What Does “Statute-Barred” Mean?
When a debt becomes statute-barred, creditors lose the right to enforce repayment through legal action. They can still contact you and request payment, but they can no longer enforce it in court. Even though statute-barred debts no longer hold legal force, they may continue to appear on your credit report and impact your credit score for up to five years from the date of default.
Exceptions to the Six-Year Rule
While most debts in New Zealand fall under the six-year rule, some debts have different limitations or no time limit at all. The most notable exceptions include:
- Tax debts: The Inland Revenue Department (IRD) can pursue these indefinitely, without a time limit.
- Student loans: Also managed by the IRD, student loans are enforceable without a six-year limit, especially for debtors living overseas.
- Court fines and penalties: If a debt results from a court-ordered fine or penalty, it remains enforceable indefinitely.
Restarting the Clock on a Debt
If a debtor makes a payment or acknowledges the debt in writing before the six years are up, the time limit restarts. For example, if you haven’t made a payment for five years but then make one last payment or agree that the debt exists, creditors may have another six years from that point to chase the debt legally.
It’s wise to be cautious if you’re contacted about an old debt. If you acknowledge it without realizing the implications, you might unintentionally reset the statute of limitations. Always know your rights before engaging with creditors about old debts.
Mortgage Debts and Property-Related Loans
Mortgages and other property-secured loans have a longer debt recovery period of 12 years, as these types of debt often involve larger amounts and longer repayment terms. This extended period reflects the increased financial commitment associated with secured property loans.
How to Respond if a Creditor Contacts You About an Old Debt
If you believe a debt may be statute-barred, staying informed can help you protect your rights:
- Request debt verification: Ask the creditor to provide proof of the debt’s age, recent payments, or written acknowledgments that may have reset the six-year limit.
- Check the statute of limitations: Confirm whether the six-year period has expired, which can often be done by reviewing your payment records or asking the creditor directly.
- Seek professional advice: If unsure about your rights, talk to a debt professional like InSolve to clarify your position. Experts offer guidance based on New Zealand’s debt laws, helping you move forward confidently without unnecessary financial strain.
Consequences of Ignoring Debt
Ignoring debt—even if statute-barred—can still impact your credit score, limiting access to future loans, mortgages, or credit products. In some cases, creditors might pass these on to debt collection agencies, which may continue to pursue repayment, though they lack legal force. If you have multiple debts, consulting a professional can help you manage or resolve debt while reducing stress and potential costs.
Can a Creditor Still List a Statute-Barred Debt on My Credit Report?
Yes, a statute-barred debt can remain on your credit report for up to five years from the date of default, potentially affecting your credit rating. After five years, this debt should no longer appear on your report. If it does, contact the credit reporting bureau or a credit repair agency to have it removed.
What to Do If You’re Unsure About Your Debt’s Statute of Limitations
Debt limitations can be complex, so if you’re uncertain about the status of a debt, seeking professional advice may be beneficial. InSolve’s team can provide tailored support, clarifying debt limitation laws and guiding you in managing your debt based on New Zealand’s regulations.
Seeking Professional Help
Managing debt and understanding limitation periods can be challenging, especially if dealing with multiple creditors. Knowing your legal standing can empower you to make informed financial decisions and take steps to protect your future.
InSolve offers practical services for New Zealanders who are dealing with debt issues. From guidance on statute-barred debts to complete debt management plans, InSolve ensures you’re well informed about your rights and options. Get in touch with us to find out how we can help you responsibly manage debt and regain financial control.
