Statute barred debt refers to a type of debt that is no longer enforceable through legal action because a specified period of time has passed since payment has been made of the debt has been acknowledged in another way, such as a written acknowledgement.
What does statute barred debt mean?
If a debt is statute barred it means that the lender, or creditor, has exceeded the time limit to use certain types of enforcement action.
Often, a debt is statute barred when six years has passed since the last default notice was sent.
It’s important to be aware, however, that statute barred debts don’t just disappear. In some circumstances creditors or debt collectors can still try to recover money from you.
Statute barred debts can also still appear on your credit reference file which can make it more difficult to get credit in the future.
What is a default notice?
A default notice is a warning letter from a creditor to let you know you’ve missed payments.
According to the Consumer Credit Act, if you break the terms of a credit agreement, the lender must send a default notice before taking action such as issuing a County Court Judgment.
A creditor can’t demand full payment for any debt owed or terminate the agreement before issuing a default notice. The notice should give you 14 days to pay the arrears.
Paying the arrears or offering a final settlement offer can stop further action. If you don’t, the notice will expire and the creditor can seek court action.
What is the time limit for collecting debt?
When it comes to collecting debt, creditors must adhere to the rules of the Limitation Act 1980.
The act sets out how long a creditor has to take certain action against you to recover the money owed. This time limit is known as the limitation period.
However, you should know that the limitation period doesn’t apply to all types of enforcement or recovery action and the time limit may vary depending on the type of debt you have.
When can I use the Limitation Act?
As already mentioned, the Limitation Act 1980 sets the fixed time limit creditors have to take enforcement action.
This time limit can vary not only on the type of debt but also where you live in the UK.
The Act only applies when you’ve had no contact with the creditor during the limitation period. That means there’s been no written acknowledgement of the debt.
What’s the time limit for unsecured debts to become statute barred?
An unsecured debt is a debt that has no asset, such as a property or vehicle, attached to it.
Unsecured credit debts include things such as payday loans, personal loans, credit cards, council tax arrears, rent arrears and unpaid utility bills to name a few.
When an unsecured debt becomes statute barred depends on where you live in the UK.
In England, Wales and Northern Ireland the Limitation Act states that unsecured debts have a six year limitation period.
Scotland has a shorter limitation period at just five years, unless there’s a court judgment to extend this time limit.
Personal injury claims are the exception to the rule, however, with a shorter limitation period of three years.
When the limitation period starts running, an unsecured debt will become statute barred if:
- The creditor hasn’t taken court action to obtain a County Court Judgment (CCJ) against you.
- You haven’t made any payment towards the debt during the limitation period.
- You haven’t provided written acknowledgement or contacted the creditor admitting to the debt during the six year limitation period.
Can a secured debt become statute barred?
For a debt to be classed as secured, it must have an asset attached to it, such as a property.
Failing to repay secured debts can have serious consequences.
Regular missed payments on a mortgage, for an example, could result in being issued with a default notice and your creditor obtaining a court order to force the repossession and sale of your home.
Secured debts have different time limits compared to unsecured debts.
Debts, such as mortgage shortfalls, have a longer limitation period. Lenders have an extended limitation period of twelve years.
That means it would take more than a decade from the default notice date for the debt to become statute barred.
A secured debt is a type of debt that is backed by collateral. This collateral is typically an asset, such as a house or a car, that the borrower puts up as security for the loan.
What is the limitation period for other debts such as benefit overpayments and tax debt?
Not all debts are subject to the time limitation period.
If you owe money to income tax, VAT, capital gains tax or any HM Revenue & Customs debts, the tax office can demand payment and take further action to recoup the debt.
National Insurance is the exception to this rule, however, as it’s not classed as a tax and as such is subject to the six year limitation period.
If you owe money to the Department of Work and Pensions (DWP), for example for benefit overpayments, the DWP is entitled to take any arrears from your existing benefit payments without court action and without permission.
When does the limitation period begin?
Just as it’s important to know how long each relevant limitation period is, you should also know when it begins.
The six year period begins from the most recent date of:
Date of last payment
The date of your last payment towards the debt, either by yourself or another person if you have a joint debt, will count as the start of the limitation period.
Payments made by a a debt company, financial advisor or agency will also be included as contact.
Last acknowledgment of the debt
This must be a written acknowledgement that you’ve signed. Email correspondence can also be considered an acknowledgement.
This can either be by yourself or a third party acting on your behalf.
In the case of joint debts, acknowledgement only applies to the person who wrote and signed the letter.
It’s important to note that written correspondence or telephone calls from the creditor don’t count as contact.
Earliest date court action could have started
When you sign the paperwork for any credit, whether it be a personal loan or a credit card, there’s often a defaulting term within the terms and conditions.
This sets out when a creditor would be entitled to raise court action to recover the debt owed.
If you exceed the time period without a creditor acknowledging the debt or raising court action, the limitation period starts running.
If court action has been instigated at any point during this limitation period, the debt can never become statute barred.
Is there a limitation period for student loans?
Student loans can be divided into two categories:
- loans for students who started their course before September 1998
- loans for students starting their course from September 1998
According to the Limitations Act the limitation period for student loans is six years.
Older student loans until September 1998 would typically be due from the April following the conclusion of the course and any limitation period couldn’t begin until after you missed payments. However, if you requested for the loan to be deferred within the six years, this would have restarted the limitation period.
It can be more difficult for new student loans to become statute barred as the payment plan begins when you earnings reach the set threshold and the debt is paid directly from your wages.
Is there a limitation period for Child Maintenance Service debts?
If you owe money the the Child Maintenance Service (CMS) or the Child Support Agency (CSA) the limitation rules can be tricky to understand.
The CMS and CSA aren’t required to adhere to a time limit to apply for a liability order (an order that gives the council additional powers for collecting debt owed).
When a liability order has been secured, a six year limitation period applies when it comes to using certain types of enforcement, such as bailiffs.
However, there’s no time limit to use enforcement such as imprisonment or driving disqualification.
The agencies can also try to make you pay through various methods that don’t require a liability order. These include taking money directly from your wages, benefits or bank account.
If you’re worried about this type of debt, it’s important to seek debt advice as soon as possible.
Is there a limitation period for joint debts?
If your debt is in joint names with another person, the creditor can chase either of your individually or jointly for the full amount owed.
To check if a joint debt is statute barred, you need to:
- Check if the other person has made any payments within the limitation period. If they have, the time limit starts again for you both.
- Check if the other person has admitted in writing that they owe the debt. If they do this but haven’t made payments, the period will only restart for them.
What should I do if my debt is statute barred?
If you’re certain that the limitation period for an old debt is over and the creditor hasn’t been in touch then you can ignore the debt.
What if creditors still request payment?
If a creditor contacts you about a debt you believe should be statute barred, it’s important to check before responding.
You can do this by:
- Checking your credit file
- Checking your bank statements to confirm the last time you made a payment
- Checking your emails or mail correspondence to check when you last acknowledged the debt
If you’re still unsure you can write to the creditor asking them to provide proof that it’s not a statute barred debt.
If they can provide written proof that the debt isn’t statue barred, you must make arrangements to begin making repayments.
You can do this by setting up a payment plan that’ll allow you to make affordable repayments.
If the creditor continues to pursue you even if the debt is statute barred, you may be able to receive support from the Financial Ombudsman Service.
What can a creditor do after the limitation period ends?
When the limitation period comes to an end, a debt is statute barred. This means that your creditor has no legal power to recover the debt.
You should make it clear that the debt is statute barred and ask the creditor to stop contacting you.
However, if the creditor isn’t regulated by the Financial Conduct Authority, they’re still entitled to chase the debt through any alternative methods available.
Where can I find debt advice?
If you’re being chased for debt you can’t afford or are unsure if old debts are statute barred, it’s important to seek professional support.
Carrington Dean is one of the UK’s leading debt help companies, providing support and advice to those in need.
We’ve helped more than 45,000 people find a debt solution to help them regain financial control.
With options to write off a percentage of unsecured debt to clearing debt completely with affordable repayments.
