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Types of debts

Information about different situations where debts can arise.

Debts are a very common legal problem that most people experience at some stage in their life. 

There are many different situations where debts can arise. A debt occurs when someone owes someone else money. This could be because you: 

  • ​​loaned money to a friend or family member, or they loaned money to you
  • sold goods or services to someone, and they haven't paid you
  • have not paid someone for goods and services they provided you
  • borrowed money from a bank and have not repaid the loan within the time required
  • have not been paying the mortgage on your house
  • have not paid your phone, water, gas or electricity bill.

Other common examples of debts are where you:

  • haven't paid your rent, or your tenant owes you rent
  • have joint debts with your ex-partner.

In those situations, it is important to get legal advice because specific laws apply. 

The time limit to start a claim to recover money is within six years from when the debt became owed, when it was last acknowledged or when the last payment was made. If the debt is more than six years old, you don't have to pay it.

A contract is an agreement between two or more parties. It is a legally binding promise or agreement. It doesn't have to be in writing. If one person does not carry out the terms of the contract, they may have 'breached' the contract. The other person could choose to make a claim for money or a debt arising out of the breach.

For more information, see Contracts.

A private loan is an agreement between the person lending the money and the person borrowing the money on the condition that the loan will be repaid by a specific date or event. A private loan is different to a loan from a bank or other credit provider. A private loan is more flexible than borrowing money from a bank as the terms can be negotiated between the parties. However, disputes can arise if the person borrowing the money cannot afford to repay the debt. 

For more information, see Gifts and private loans. 

Bank loans, credit cards and mortgages are consumer credit contracts. National credit laws cover these types of contracts and these laws give additional rights to consumers if they have a consumer credit debt problem.

For more information, see Loans and credit cards.

If you are struggling to pay your utility bills, the first step is to contact the service provider by phone, by email or by letter. 

You may be able to negotiate a payment plan with the service provider or apply to an Ombudsman service. 

For more information, see Electricity, gas, water and phone bills.

Contact us

If you have a legal problem in NSW, Legal Aid NSW is here to help you.

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