“Prescribed Debt” is a legal term that is a little hard to define. Today we’ll clarify what this term means, how it works, and whether your debt falls within this definition.

Defining Prescribed Debt

This type of debt is codified in the Prescription Act. Essentially, debt legally expires after an uninterrupted period of three years in the case where certain conditions apply.

When Debt CANNOT Legally Expire

There are conditions that must be met during a consecutive three-year period for debt to be legally payable to the creditor. These include cases where:

• The debtor at any point acknowledges to the creditor that they have debt
• If at any point during the three year period the debtor makes any payments toward the debt
• A creditor issues a summons to the debtor stating that they must pay back the debt payments

For instance, if you do not make any payments for a consecutive three-year period (e.g. between 1 January 2019 and 1 January 2022) BUT you have at any point admitted to your creditor that you owe them money, then your debt still remains payable.

When Debt CAN Legally Expire

Only if none of the above-mentioned conditions apply, then debt will expire after three consecutive years. For example, if you last made a payment towards a specific loan on 1 August 2018 and your bank only issues a summons on 2 August 2021, then your debt is no longer payable if you’ve not acknowledged the debt during this time.

Once your debt expires, creditors may not attempt to collect any more payments, as it would be illegal. In other words, if your bank tries to collect payments from you and your debt is legally expired, then they are breaking the law.

Struggling to pay off your debt? Contact us for a free debt assessment and start your journey to achieving financial freedom today!