A debt becoming statute-barred isn’t something that happens all that often, but it’s something you should be aware of. While most debts become statute-barred after a certain amount of time, some periods can vary based on the type of debt and where you live.
Today, I’ll go over statute-barred debt and everything you need to know about it in the UK. First, let’s understand the individual words.
Statute:
- a piece of written legislation that a legislative body has enacted.
- a rule of a company or organisation
- a law or decree issued by a king or by God (in biblical usage)
Barred:
- keep someone from doing something
- prohibit someone from engaging in (an activity)
- Something should be excluded from consideration.
- By objecting, the law can block or postpone (an action).
What is Statute Barred Debt?
We can draw from the foregoing definitions that a statute-barred debt is one that is prohibited from specific actions by written legislation issued by a legislative body—but excluded from what and by whom?
Simply put, a statute-barred debt is one that can no longer be pursued or recovered by your creditor due to legal restrictions.
According to the restrictions put down by the Limitation Act 1980 and overseen by the Financial Conduct Authority, any consumer debt provides the creditor with a set length of time to attempt to recover what they are owed. It is not considered fair by the law for creditors to take excessive amounts of time to achieve this.
So, if a debt has been inactive for an extended period of time without payment or confirmation that the debt is still ongoing, the sum owed is no longer recoverable through the legal system. This means that your creditor will no longer be able to retrieve the debt through court action or legal procedures.
Related: CREDIT AGREEMENT: Detailed Guide on how a Loan Agreement Works
The debt, by being unenforceable, still exists, and the creditor is free to pursue other methods of recovery, such as private debt collection agencies, but any techniques they choose to employ will not be legally enforceable, and they will have no legal power to compel you to make payments. This is true for most of the UK, with the exception of Scotland, where the debt is cancelled and no longer exists.
There are multiple time frames for different sorts of debt, and rigorous criteria govern when those time frames begin. The timing of the statute-barred debt limitations in Scotland varies slightly from those in the rest of the UK, although they fundamentally follow the same standards.
The fundamental requirement for a statute-barred debt is that you have not paid or acknowledged the debt within the time period specified in the UK. If your creditors have not pursued any legal form of recovery through court action within the time frame specified, the debt becomes statute-barred, and the creditors are no longer permitted to make legal advances to recover it.
For how long may a creditor pursue a debt?
A creditor’s normal time range for recovering an unsecured debt is six years. This is referred to as the limitation period. In Scotland, the time limit is only five years unless the court provides an extension ruling.
This applies to the vast majority of unsecured debt, which includes credit cards, shop cards, catalogue repayments, personal loans, utility bills, council tax arrears, overdrafts, benefit overpayments, rent arrears, and other types of debt.
Secured loans, such as mortgages, have a longer repayment period of twelve years.
Income tax, VAT, and capital gains tax payable to HM Revenue & Customs have no limitation period. They have the right to pursue any debt at any time. This also applies to benefit overpayments made by the Department for Work and Pensions. They have the right to deduct any arrears from your current benefit payments without a court order or your approval.
How can I tell if a debt is statute-barred in the UK?
- By making a payment on the debt
- During the limitation period, you must not have made any payments towards the debt.
- The debt is confirmed in writing.
- During the limitation period, you must not have written or emailed your creditor acknowledging the debt.
- By way of legal action
- During the limitation period, your creditor must not have already initiated legal proceedings against you by issuing a County Court judgement.
If you meet all of these requirements, your debt will be considered statute-barred.
If you are unsure if your debt is statute-barred, you should not resume making any payments to your creditor. By doing so, you will invalidate the limitation period and become liable for the debt once more.
It is critical in this scenario not to admit the debt. You may, however, request that they give confirmation that the debt is liable under the Limitation Act. It is the creditor’s job, not yours, to demonstrate that the debt is still active. To renounce the debt, use the form letter at the end of this article and send it by recorded delivery, as you may require proof of when it was sent, Save a copy of the letter for reference. Other than your mailing address, never include any other contact information for correspondence. This ensures that you always have written proof of any communication.
What should I do if my debt has been barred or erased by statute?
Nothing. If you are convinced that the limitation period has expired and your creditors have not contacted you about the debt, you can ignore it and go about your debt as usual.
When does the statute of limitations begin?
The restriction period begins on the most recent of the following dates:
#1. At the time of the last debt acknowledgement
This should be done in writing and signed. Email is also becoming accepted as a kind of written acknowledgement. Written acknowledgement only applies to the party who wrote and signed the letter in the case of shared debt.
Any third-party contact made on your behalf is likewise considered an acknowledgement of the debt. If you have used professional services from financial advising or debt management businesses, this is deemed debt acknowledgement and negates the limitation period.
Any written letter from the creditor, as well as any telephone communication, does not constitute acknowledgement.
When calling your creditor, you must state unequivocally that you do not owe the debt. By doing so, you are disputing any claim they may make in a way that cannot be interpreted as acceptance or admission of the debt.
#2. At the moment of the last payment on the debt
The last payment made by you, or by either party in the case of a joint debt, will be used to determine when the limitation period begins.
Any payments made by a financial advisor, agency, debt management service or corporation will also be considered for this choice.
#3. The earliest date on which a legal action may have been initiated
Depending on the type of debt, there will usually be a default term spelled out in the loan’s terms and conditions. This could be after a certain number of missed payments or a certain amount of time that the debt has been delinquent. At that moment, your creditor would have been authorised to file a lawsuit to recover the debt.
That could also be the start date for the restriction period. For the debt to be statute-barred, the creditor must not have filed a lawsuit at the time. If court action is brought at any point throughout the apparent limitation period, the debt will never be statute-barred or cancelled.
The commencement of the limitation period can be difficult to ascertain for types of debt other than standard loan alternatives. This is especially true for those without precise terms and circumstances. You should obtain assistance in determining the exact date and whether the debt is still active.
What may a creditor do once the statute of limitations has expired?
When the limitation period expires, the creditor loses all legal rights to collect the debt. Your creditor should stop contacting you if you have made it apparent that the debt is now statute-barred in the UK.
If the creditor is not regulated by the Financial Conduct Authority, they may still contact you and pursue the debt using any other means available to them.
Template for a Statute-Barred Letter
The letter form below can be used to reject applications for payment on a debt that you feel is statute-barred or to request proof from your creditor that it is not. When contacting your creditor, always preserve a duplicate of your letter and send it by registered mail.
Greetings, Sir/Madame
(Insert account or debt reference number)
I deny liability for this debt and will not make any additional payments to it for the following reasons:
- More than six years ago, you could have filed a lawsuit for the full amount owed on this debt.
- For more than six years, no payment has been made to this debt by me, any joint account holder, or any third party acting as my agent.
- For more than six years, I or any third party acting as my agent have made no written admission of culpability for this debt.
As a result, this debt is statute-barred, and any court claim to recover it will be fought on that basis. Please offer me evidence that this debt isn’t statute-barred within 21 days if you have it. Otherwise, please affirm in writing that you will not pursue me for this debt any further.
Yours sincerely,
(Please sign here.)
I Made an Inadvertent Payment to a Statute-Barred Debt. Is this a sign that it is now enforceable?
Fortunately, no. If a debt is statute-barred, it remains so regardless of what you do.
You can still make payments towards it if you want to repay it. However, if you make an unintentional payment towards the debt after the limitation period has expired (after 6 years or 12 years in the case of mortgage shortfalls), the limitation period is NOT refreshed.
Your debt will remain unenforceable, and your creditor will be unable to take legal action against you.
When is a Statute-Barred Debt Removed from My Credit Report?
As I previously stated, most types of debt become statute-barred six years following the Default Notice.
In addition, the mention of your debts is deleted from your credit file six years after you defaulted on them.
As a result, when you receive a default notice, it is recorded in your credit history. Following that, if your creditor does not pursue any action in relation to that debt for 6 years, your debt will become unenforceable and will be deleted from your credit file at the same time.
Conclusion
It doesn’t happen very often, but it’s critical to understand how debt becomes statute-barred so you don’t end up paying debts you’re no longer obligated to pay.
Statute Barred Debt FAQs
Is there a statute of limitations on debt?
Most statutes of limitations are three to six years long, though they may be extended in some jurisdictions depending on the nature of the debt. They may differ depending on state laws.
Do I have to pay a statute barred debt?
After the time limit has expired, the debt may be statute barred,’ which means you are not required to pay it. Your debt may be statute barred if, throughout the time period, you (or, if it’s a joint debt, anyone you owe the money to) have not made any payments towards it.
How do I remove a statute barred debt from my credit file?
You can contact the creditor on your own, but you must exercise caution. If you write to them and admit that you owe them money (for example, by providing a partial payment), the debt will no longer be statute banned.’ To get the creditor to cease contacting you, use the National Debtline’s template letter.
