Is my family loan expiring? – Family and marital relations

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Loans between family members, especially between parents and children, are not new. Depending on the circumstances, these loans can be of significant value, such as helping a child buy their first home.

Unsurprisingly, these loans also tend to be minimally documented, lack clear repayment terms and / or are usually repayable on demand. Some lenders are fine with this given the close relationship and trust between family members. Regardless, there is one important factor that is often overlooked – time.

Restrictions Act 1969 (New South Wales)

In New South Wales Restrictions Act 1969 (New South Wales) ( act) establishes a general limitation period of six years from the moment the basis for a claim arises to recover a debt arising under a contract. one and twelve years from the date of occurrence of the basis for the claim for the recovery of the debt arising in the case.2 In other words, depending on the level of documentation, the creditor has six or twelve years from the moment the basis for the initiation of a debt collection case arises.

A key element of these statutes of limitations is determining when the cause of the claim “accumulates”. In a contract, as a rule, the cause of a claim is a breach of the contract by one of the parties. For example, in a valid and enforceable loan agreement with a bank, this could be when a party defaults on the loan (ie, cannot repay). Demand loans vary, with the time the cause of the claim arises is the time the funds are advanced.

This deadline may seem inappropriate for creditors, such as parents, who would never consider taking a debt collection case against their child, but would instead prefer to let their child pay off the debt over a longer period. However, the Law also stipulates that the right to collect a debt is “canceled” after the corresponding period of validity.3 In fact, this means that the debt is considered to last longer, which can have a decisive impact on the rights of both the creditor and the debtor.

Can these statutes of limitations be avoided?

Despite the strict legal deadlines, there are options to defend your position.

A creditor who has already provided funds may request a “confirmation” of the debt, usually either a payment of the principal or interest payments, or a written confirmation of the debt. If the parties choose to confirm the debt only in writing, there are certain factors that must be met, for example, the confirmation must be in writing, signed by the debtor, acknowledge the debt and acknowledge that the debt remains outstanding, all within the applicable statute of limitations.4

It is important to note that if a valid “confirmation” has been provided, the corresponding restriction period will resume from the time of this confirmation.

Alternatively, a lender who has yet to lend funds may consider consulting a lawyer to prepare a formal loan agreement that includes, among other things, a demand reserve. The advantage is that the limitation period is extended to 12 years and the debt is payable after the claim is filed, which ensures that there is no time before the claim is filed.

Conclusion

Before disbursing funds, all creditors (especially family members) should be aware of the applicable statute of limitations for debt collection in NSW.

Footnotes

one Section 14 Restrictions Act 1969 (N.S.W).

2 Section 16 Restrictions Act 1969 (N.S.W).

3 Section 63 Restrictions Act 1969 (N.S.W).

4 Section 54 of the Act Restrictions Act 1969 (N.S.W).

The content of this article is intended to provide general guidance on the subject. You should seek professional advice regarding your specific circumstances.

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