When is a credit time-barred?

When it comes to debt recovery, it is essential to know exactly “when a credit becomes time-barred“. The following article describes:

1. What is the statute of limitations?
2. How to prevent the statute of limitations of a credit?
3. Which credits are time-barred in 5 years?
4. Which credits are time-barred in less than 5 years?

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1.- WHAT IS THE STATUTE OF LIMITATIONS (i.e. PRESCRIPTIVE PERIOD)?

The statute of limitations, aka prescriptive period, is the mechanism according to which if the creditor does not exercise his/her right within a certain period of time, his/her right ceases to exist. The general principle regarding prescription is provided by article 2934 of the Italian Civil Code, but let’s immediately give some practical examples:

• as a general rule, the ordinary prescription of a credit claim is 10 years;
• compensation for damages for unlawful acts, on the other hand, is prescribed in 5 years;
• electricity and gas bills are time-barred in 2 years.

In the following paragraphs we will examine in detail other prescription periods, but we should start by noting that the law always provides for a period within which action must be taken… otherwise the credit “expires“.

In order to check whether a debt claim is time-barred, it is first necessary to determine how much time has elapsed from the day on which the debt became due (e.g. from the payment date stated on the invoice) to the current day. After that, the ratio between the duration of this period and the period prescribed by law must be established.

Please note! The credit is only extinguished if the creditor has remained inactive. We will address this aspect more thoroughly in the next paragraph.

2.- HOW TO PREVENT THE PRESCRIPTION OF THE CREDIT?

Before analyzing the different types of credit and their respective prescription periods, we will first discuss the procedure to be followed by the creditor to prevent the prescription of a credit.

Essentially, the creditor must clearly express his/her desire to obtain payment from the debtor. This expression of will (i.e. intimation of payment) can take place through:

• a formal reminder;
• a warning letter;
• a court action.

Should the formal notice be issued, the timer is reset to zero. That is, a new prescriptive period begins to run (from the beginning). Conversely, if the creditor does nothing to recover his debt, it could be assumed that he has lost interest in it.

Simple telephone reminders are therefore not sufficient, rather it will be necessary to issue a formal notice of default, for example, sent by a lawyer by registered letter with return receipt or CEM. The formal notice should always contain the exact amount claimed and the reasons for the credit.

A judicial action is also considered to effectively interrupt the prescription (summons, appeal for injunction, etc.), as well as the hypothesis in which the debtor has expressly recognized his/her debt.

We shall now analyse the various prescriptive periods.

3.- WHICH CREDITS ARE TIME-BARRED IN 5 YEARS?

The general rule is that regarding contractual credits (which are time-barred in ten years), but here we examine the other prescriptive periods. It goes without saying that it is of utmost importance to classify the credit/debit so as to ascertain how much time is left to act, thereby avoiding the prescription.

The following are time-barred in 5 years:

• the annuities of maintenance payments;
• rights to compensation for damages arising from unlawful acts;
• penalties;
• rents for leased property;
• renovation expenses;
• the nominal capital of government bonds.
• apartment building expenses;
• rights deriving from company relations (if the company is registered in the Companies’ Register);
• annual instalments of life annuities/perpetuities;
• indemnities arising from termination of employment;
• debts due within one year or less;
• tax returns;
• insurance policies.

4.- WHICH CREDITS ARE TIME-BARRED IN LESS THAN 5 YEARS?

Short or presumptive prescription hypotheses are those based on the presumption that a given credit has been paid or that it is in any case extinguished once the short terms (6 months, 1, 2 and 3 years) indicated by the law have elapsed.

They are time-barred in 3 years:

• the right of notaries for the acts of their ministry;
• the fees of professionals;
• the right of teachers for lessons given for more than one month;
• the right of employees for remuneration paid for periods of more than one month;
• automobile tax stamps.

They are time-barred in 2 years:

• water, electricity and gas bills (as of January 1, 2019, the statute of limitations is paid from 5 to 2 years as provided by the 2018 Italian Budget Law).

Time-barred in 1 year:

• subscriptions to sports centers;
• fees for court documents;
• school fees;
• liability, theft and fire insurance premiums ( whereas it remains at 2 years for all other insurance premiums);
• medicines.

These are prescribed in 6 months:

• credit entitlements for board and lodging (e.g., pensions, hotels, b&b’s, etc.).

For more information or to receive assistance, please visit our page dedicated to debt recovery.