Can Debt Be Written Off In Old Age? - Carrington Dean stars-five-icons

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12.11.2018

Can Debt Be Written Off In Old Age?

The Scottish Parliament has passed new legislation to update and clarify when debts in Scotland are written off because of old age.

The Prescription (Scotland) Act 2018 aims to clarify the law of Scotland in terms of when a debt becomes statute barred, which means the point when creditors can no longer pursue you to repay a debt because too much time has expired.

The legislation clarifies what debts are covered by the two time periods in Scots Law when debts become statute barred. The first of these is for those debts that fall under the five-year rule, and the second is for those that fall under the twenty-year rule.

Five-year rule for statute barred debts

Most consumer credit debts, personal loans, and overdrafts fall within the five-year rule. What this means is if the person that owes the money doesn’t make a payment to the debt for five years, or doesn’t write to the creditor to acknowledge that they still owe the debt, what is known as “relevant acknowledgment”, then the person owed the money has to take action to make a “relevant claim”.

A “relevant claim” could mean raising court action against the debtor, applying for an earning arrestment or a bank arrestment or petitioning for the debtor’s bankruptcy.

If they do make “relevant claim” or the debtor makes a “relevant acknowledgment” then the five year period begins to run again from the beginning.  Every relevant claim or acknowledgment starts the prescription period running again from the beginning.

What the new legislation does is clarify what other debts are included under the five-year rule. This includes most debts, including debts that arise from legislation, except debts owed to HMRC, council tax debts, child maintenance arrears, and the UK benefit overpayments.

Benefit overpayments that are owed to the Scottish Social Security Agency will be covered by the five-year rule.

The twenty-year rule for statute barred debts?

The twenty-year rule will cover council tax debts, HMRC tax credit overpayments and debts owed for income tax, national insurance contributions, and VAT. Arrears owed for child maintenance will also be covered by the twenty years.

Other debts that will also be covered by the twenty years rule will be debts that are constituted by an order of the court or a tribunal, so could include a debt owed for a credit card or a bank loan, where the creditor has raised an action in court and obtained a court order (also known as a decree).

However, unlike previously, under the new legislation, it will no longer be possible for debts under the twenty years rules to be interrupted by a “relevant claim” or “acknowledgment” and for the twenty year prescription period to begin running again.

In future after the twenty years expires, the debt will no longer be enforceable, even if a payment had been made the week before and there are still amounts due to be paid.

Should I not pay a debt in the hope it becomes statute barred?

It is not advisable to ignore any debt, even if you dispute that you owe it.

Avoiding a debt in the hope that it will become statute barred is definitely not advisable, as the creditor is still likely to be charging interest, charges, and penalties meaning the amount you owe will continue to increase.

They may then just raise a court action before the expiry of the five year rule period, obtain a court order and then continue to pursue you under the twenty-year rule, adding interest of 8% per annum.

However, if you have been contacted by an older lender for a debt that you have not heard from in over five years and you cannot remember making any payments to them in the last five years, you should seek specialised money advice. If you do write to them or make a payment, no matter how small, you make inadvertently interrupt the running of the prescription period and this may mean the five year period starts again.

Can student loan debts become statute barred?

Student loan debts can become statute barred and they can also be written off under their own rules after the expiry of a set period of time, depending on the type of student loan you have.

However, where your student loans are being paid by deductions from your wages, this constitutes a “relevant claim” by the Student Loan Company, so the five-year rule begins again every time a payment is received.

Also where you are not making any payments, because you are not earning enough, every time you defer the student loan, you legally are making a “relevant acknowledgment” of the student loan so the five year period begins again.

Can debts in debt solutions become statute barred?

Debts being dealt with in debt solutions cannot become prescribed, as any payments in the debt solution automatically act as a “relevant acknowledgment”.   Equally, under the rules for formal debt solutions, such as bankruptcy, Protected Trust Deeds and the Debt Arrangement Scheme, the running of the prescription periods are suspended, and start again if you come out the solution without paying off your debts or getting a discharge from your trustee.

If you are struggling with debts, even old debts and want to speak to a specialist adviser, call a Carrington Dean adviser for free on 0141 326 0421.