What You Need To Know About Statute Barred Debt

The statute of limitations, often known as the Limitation Act 1980, specifies that a creditor has a limited time to pursue a debtor for payment. When the stipulated time limit passes, the debt becomes statute-barred.

The term statute-barred debt describes a debt that a person owes to a creditor with a specific time limit. It basically implies that the statute of limitations on that debt has expired, and the creditor will no longer be able to pursue legal action against you to compel repayment.

How Long Does It Take Before A Debt Is Statute Barred?

Whether the restriction period is six or twelve years, it is essential to understand when the time limit began. Time begins to run under the Limitation Act when the ’cause of action’ occurs. This is not true for all sorts of debt, so use caution.

The limitation period in the UK

In the UK and Wales, under the Limitations Act 1980, unsecured debts are limited to six years. In contrast, secured debts are limited to twelve years from the day the responsibility is designated as past due. However, Northern Ireland is subjected to the same time of six and twelve years under the Limitation (Northern Ireland) Order 1989.

How is it different in Scotland?

In Scotland, the laws governing statute-barred debt are different from those in England and Wales. Scotland has a five-year time limit, while England and Wales have a six-year time limit imposed by The Limitations Act, 1980.

Scottish debtors and debt collectors must adhere to the Prescription and Limitation (Scotland) Act 1973, which governs statute-barred debts and provides unsecured loans.

Scotland’s statute-barred debt

To qualify as statute-barred in Scotland beyond the five-year time limit, the following must also apply within this time:

• The debtor has not recognised the obligation
• There are no debt-related decrees
• The creditor has not contacted you about the debt
• There have been no repayments.

How To Know If A Debt Has Become Statute Barred?

Under the Consumer Credit Act, if a creditor has not contacted you about your debt in six years or if you have not contacted your creditors acknowledging the debt, your creditors cannot force you to pay it back.

No payment was made towards the debt

One of the first requirements for a debt to become statute-barred is that no payment has been made toward it.

Active debt refers to any debt that you are actively attempting to repay. On the other hand, if you continue to owe money but your most recent payment is more than six years old, the obligation may possibly be statute-barred.

There is no written proof of the debt

Without paperwork establishing that you owe a particular debt, it’s difficult for a creditor to initiate legal action to collect on it. You cannot be pursued as long as there is no written proof of the debt’s existence and you have not acknowledged it in communications with the creditor.

The creditor hasn’t used court action to chase the debt

Your creditor must not have initiated legal actions against you by filing a County Court Judgment against you during the limitation period. If you satisfy these requirements, your debt will be considered statute-barred.

If you are unsure if your debt is statute-barred, you should refrain from resuming any payment to your creditor. You will invalidate the limitation period and will once again be liable for the debt.

It is critical to avoid acknowledging the debt in this circumstance. You may, however, request verification that the debt is enforceable under the Limitation Act. The creditor’s job, not yours, is to establish that the debt is still current.

To renounce the debt, write a letter and submit it through recorded delivery; you may want evidence of delivery and should also maintain a copy of the letter for reference. Never provide any additional contact information in communication other than your postal address. This will guarantee that every correspondence is documented

The limitation period on the debt has passed

A creditor cannot pursue you for a debt unless there is a valid justification for doing so, referred to legally as a ’cause of action’.

A cause of action establishes the legal basis for a creditor to pursue you in court for your debts. This essentially begins the six-year limitation period on that debt, and the creditors’ cause of action will terminate once the loan’s limitation period expires.

The Types Of Debt That Won’t Be Statute Barred

Some debts, however, cannot be Statute Barred or are subject to other limits.

Personal Injury Claims

In England and Wales, if you do not file a claim within three years after the accident or date of discovery, your claims will be statute-barred.

This effectively indicates that you are barred from pursuing further legal action, and you will be unable to pursue your claim or get compensation for your injuries.

This may seem very unfair, yet this is how the law works. To maintain justice, the legal system places a time restriction on personal injury claims and civil claims.

Mortgage Arrears

Mortgage Shortfalls Debt is subject to a two-tiered limitation period. If your property is repossessed, your creditor may pursue you for any outstanding mortgage payments. This becomes statute-barred after twelve years for any unpaid capital and after six years for interest arrears.

You may be chased down for twelve years for the money you borrowed from your supplier (the capital) but only six years for mortgage interest obligations (interest on the money you borrowed).

Debts to HM Revenue and Customs

There is no time limit on when income tax, capital gains and VAT debts may be prosecuted; you can always be pursued for HM Revenue and Customs obligations. National Insurance would be limited to six years, and they have the right to pursue any debt at any moment.

Debts Attached to a CCJ

Once a creditor obtains a county court judgement (CCJ) for a debt, the Limitation Act imposes no time constraints on the time the creditor has to execute the judgement.

If your CCJ is older than six years and the creditor wishes to pursue enforcement proceedings, the creditor must first get court approval. If they file for a third-party debt order or if you already have a charging order, specific requirements apply.

Suppose you believe the creditor has taken you to court and obtained a CCJ against you after the six-year limitation period has expired. You are allowed to petition the court to set aside the CCJ and allow you to bring a Limitation Act defence.

Bankruptcy

If a creditor has already received a county court judgement (CCJ) against you, there is no time restriction on filing for bankruptcy. If there is no CCJ, a six-year limitation period applies to declaring you bankrupt.

Joint debts

Should you have a joint debt with another individual, your creditor can pursue one or both of you for the whole amount. There’s no such thing as owing creditors 50/50.

If you believe your joint obligation may be statute-barred, you must first determine if the other party has made any payments. If they make a payment within the restriction period, both of you reset the time limit.

If the other party has not made any payments but has confirmed to the creditor in writing that they owe the obligation, the time limit will resume for them alone, not for you.

Is it possible for creditors to pursue my debt after it has become statute-barred?

A debt becomes statute-barred under the Limitation Act 1980 once a six-year limitation period has expired. Once the limitation period has passed, and the debt has been statute-barred, the creditor will be unable to pursue you in court (often by a County Court Judgment).

That is not to say the creditor cannot pursue the debt in other ways. Even if your obligation satisfies the statute of limitations requirements, it will not suddenly vanish. The creditor may elect to refer you to a debt collection agency, which will collect payments outside of the judicial system.

While debt collectors may entice individuals to make payments on statute-barred debts, they cannot force you to appear in court — they do not have the benefit of the law on their side. They must notify you of their impending presence, and they may be contested since they lack the legal authority to compel payment.

Final Thoughts

A crucial issue is that if your creditor wishes to commence legal proceedings against you, you will get court documents in the mail. You must react within the time specified in the court filings.

If you do get court papers for a debt that you believe is statute-barred, you must explain this to the court when you complete the paperwork. A warning that even if your debt is statute-barred, it does not disappear and may harm your credit score, perhaps preventing you from obtaining credit in the future.