In the UK, there are certain laws and regulations that creditors and debtors must follow during the debt collection process.
The 1980 Limitation Act is a section of UK law that outlines, among other things, how long a debt can be chased before it becomes legally unrecoverable or ‘statute barred‘.
However, with so much industry jargon to wrap your head around, it can be difficult to know how it applies to you and your financial situation.
What is the Limitation Act?
The Limitation Act (1980) is a piece of legislation that applies in England and Wales to limit the amount of time creditors have to chase debtors for outstanding debts.
Legally, it also falls under a type of law known as a ‘statute of limitations’ which essentially means a limit on how long a certain law can be applied.
Typically, the statute of limitations for unpaid debt is six years after which time the debt becomes unenforceable or ‘statute barred’.
However, there are some exceptions to this rule and strict rules around when the six-year limitation period starts and ends.
When does the six-year limitation period start?
Most people think the six-year limitation period starts running, also known as the cause of action, the moment you are approved for credit, but this isn’t the case.
The limitation period starts from the last date action accrued, such as when you last made a payment towards the debt, acknowledged the debt, or admitted to owing the money.
This is also known as the cause of action.
For example, if you last made a payment three years ago and haven’t been in contact with the creditor since, the limitation period will come to an end in three years, during which time your creditor can still take legal action against you for the unpaid debt.
However, it’s worth remembering that while you can no longer be forced to repay the debt by law and most creditors will stop chasing you after the limitation period ends, the debt will technically still exist.
Furthermore, ignoring the debt while the limitation period is still active won’t put a stop to the debt collection process and your creditor can still take legal action and issue you with a claim form at any time, which can potentially lead to bailiff action.
What happens after the limitation period ends?
When the limitation period ends, the debt officially becomes statute barred. This essentially means your creditor can no longer take legal action against you for the debt.
Some creditors will continue pursuing you for the money owed, but with no means to take legal action, most will give up and just write the debt off.
How long is the limitation period for debt?
There are different limitation periods for different types of debt, but for most debts, the limitation period is six years.
Here is a guide to the ordinary time limits for different types of debts:
Unsecured debts
Unsecured debts, which are debts not tied to anything you own, typically have a limitation period of six years. Examples of unsecured debts include:
- Credit cards
- Payday loans
- Personal loans
- Overdrafts
- Store cards
County Court Judgments
Once you have been issued with a County Court Judgment (CCJ), the Limitation Act no longer applies and there is no time limit for recovering the money owed.
However, if your CCJ is more than six years old, the creditor must get permission from the court before they can use enforcement action.
Council Tax
Council Tax has a limitation period of six years, but local councils rarely let payments go unpaid for this long without taking legal action.
For example, your local council may ask for a liability order from the court known as an attachment of earnings.
This is when money is taken directly from your wages or benefits payments before it reaches you.
However, if they do this after the six-year limitation period is up, the court will refuse their application.
Income Tax
For debts owed to HMRC, there is no limitation period and you can be chased indefinitely until the total amount is repaid.
Mortgage shortfall
A mortgage shortfall can happen if your home was repossessed, but the sale of the property didn’t make enough money to cover the balance due.
When this happens, you will be chased for the remaining or ‘shortfall’ amount.
For the recovery of money secured by a mortgage, creditors have a longer limitation period of 12 years for capital owed but six years for interest accrued.
Benefits overpayments
Sometimes, due to wrong calculations or fraudulent claims, you can receive a benefits overpayment.
When this happens, a limitation period of six years applies. However, this time limit rarely applies as the overpayment will typically be recovered through future payments.
Can you ignore the limitation period?
The thought of ignoring your debt can be tempting, but your creditor can initiate legal proceedings against you at any time during the six-year limitation period.
Most creditors will try everything to recover the money they are owed, including bailiff action, which can result in constant calls, letters, and visits to your property.
Having unpaid debts or missed payments on your credit report will also make it difficult to get further credit during this time as lenders will access this information when reviewing your application.
Remember, money you’ve been ordered to repay through a CCJ or owed to HMRC will never be statute barred and legal action could be taken against you at any time.
Because of this, many individuals enter into settlement negotiations with their creditors to find an alternative dispute resolution that works for both parties.
Alternatively, you can repay what you owe through an approved debt solution, such as an Trust Deed, which puts a stop to creditor contact and harassment and clears your remaining debts after six years.
Can I still be contacted about a debt after six years?
While rare, creditors may still get in touch after the limitation period has passed on a debt. When legal action arises, it’s important that you don’t make a payment or even admit to owing the money.
Once the limitation period is up, you are not legally required to make a payment towards the debt as the debt will officially become statute barred.
You also can’t be forced to pay if there was a problem with the original agreement, for example if they didn’t include the correct information about how the money should have been repaid.
The Limitation Act exists to protect both debtors and creditors during the debt collection process. If a creditor contacts you about a debt after six years, you are within your right to ask for proof of why they think it is still owed.
