In the case of problematic loans, questions often arise regarding the limitation period for a loan, or how a loan is recognized as time-barred. Does information about time-barred loans remain in a person's credit history? There is a common misconception that if I take out a loan and do not pay it for years, the creditor will no longer have the right to demand repayment. Let us see what the Civil Code actually says about limitation periods and how creditors can claim overdue loans.
What does limitation period mean?
The right to demand an action or omission from another person has a specific period – this period is called the limitation period. It is the period during which a claim can be made. In the case of a loan, this is the period during which the creditor can demand repayment of the loan from the borrower.
What is the limitation period for a loan?
As a rule, claims arising from monetary obligations are subject to a 3-year limitation period; more specifically, contractual claims, and thus the limitation period for a loan, is also 3 years. During this period, the creditor may demand repayment of the loan. To satisfy their claim, the creditor may take certain actions based on the agreement concluded with the borrower, including applying to the LEPL National Bureau of Enforcement, the common courts of Georgia, and/or the relevant dispute resolution bodies.
From when is the limitation period for a loan calculated?
The limitation period begins from the moment the claim arises. The moment a claim arises is considered to be the time when the person became aware or should have become aware of the violation of their right. Accordingly, the limitation period for a loan is calculated from the moment when the creditor acquires the right to claim against the borrower – that is, when the borrower was required to make a payment or repay the loan and failed to do so. For example, if the borrower was required to make a loan payment on July 1, 2022, and did not pay, the limitation period starts from the next day, i.e., July 2, 2022, and continues until July 2, 2025. During this period, the creditor may act in accordance with Georgian legislation to restore their violated right.
How is the calculation of the limitation period for a loan interrupted?
The running of the limitation period for a loan is interrupted, or in other words, the "loan is revived," if the borrower acknowledges the existence of the claim before the creditor, for example, by making an advance payment, paying interest, providing a guarantee, or otherwise.
Who recognizes a loan as time-barred?
After 3 years have passed, if the creditor has not made a claim during this period, the loan does not automatically become time-barred. The claim must be recognized as time-barred by the court. In exceptional cases, the creditor may acknowledge the limitation of their own claim. When a claim is confirmed by a court decision that has entered into legal force, the limitation period is 10 years. That is, if the court decides that the loan must be repaid to the creditor, enforcement, such as the sale of collateral at auction or seizure of the borrower's assets, is possible within 10 years from the date of the court decision.
What happens if the creditor demands repayment of a time-barred loan from the borrower?
It should be noted that the creditor may still apply to the court to satisfy their claim after the expiration of the limitation period; however, if the borrower responds by stating that the loan is time-barred, the court, as a rule, will not satisfy the creditor's claim. Recognition of a loan as time-barred is within the competence of the court.
Do time-barred loans remain in the credit history?
If the time-barred status is confirmed by a court decision that has entered into legal force and/or on the basis of the creditor's statement, time-barred loans remain in the credit information bureau's database for 5 years from the date the status is assigned. After this period, the consumer may apply to the financial institution and/or the credit information bureau to have the record of this loan removed from their credit history.
