Statute Barred Debt – All You Need To Know
- a written law passed by a legislative body
- a rule of an organization or institution
- archaic (in biblical use) a law or decree made by a sovereign, or by God
- prohibit (someone) from doing something
- forbid (an activity) to someone
- exclude (something) from consideration
- Law prevent or delay (an action) by objection
What is statute barred debt?
From the dictionary definitions above we can deduce for ourselves that a statute barred debt is one that is excluded from certain actions by a written law passed by a legislative body — but excluded from what and by whom?
Quite simply, a statute barred debt is one that can no longer be chased or recovered by your creditor due to regulations laid out by law.
Any consumer debt, according to the rules laid out by the Limitation Act 1980 and regulated by the Financial Conduct Authority, gives the creditor a set amount of time to make an attempt to recover what they are owed. The law doesn’t think it’s fair for creditors to take excessive amounts of time to do this. So if a debt has laid dormant for too long without payment being made towards it or of any acknowledgement that the debt is still active then the amount owed is no longer liable to be recovered using the methods laid out by the legal system. This means that your creditor can no longer pursue court action or utilise legal procedures to recover the debt.
The debt, by becoming unenforceable, still exists however, and the creditor is entitled to explore other methods of recovery, such as private debt collecting agencies for example, but any methods they choose to utilise are not be enforceable by law and they will have no legal power to force you into making payments. This applies throughout most of the UK, the exception being in Scotland where the debt becomes extinguished and ceases to exist.
There are different time frames for different debt types and strict rules for when the different time frames actually begin. The timings are slightly different in Scotland than in the rest of the UK but essentially they still follow the same guidelines.
The main stipulation of a statue barred debt is that you must not have made payment towards or acknowledged the debt in the time frame allowed. If your creditors haven’t proceeded with any legal form of recovery through court action during the allowed time frame then the debt becomes statute barred and the creditors are no longer entitled to make legal advances to recover it.
How long can a creditor chase a debt for?
The standard time frame for a creditor to recover an unsecured debt is six years. This is known as the limitation period. In Scotland the time frame is only five years unless the court issues a decree to extend the duration.
This applies to the majority of unsecured debt; this includes credit cards, store cards, catalogue repayments, personal loans, utility bills, council tax arrears, overdrafts, benefit overpayments, rent arrears and more.
Secured loans, such as mortgages for example, offer an extended timeframe of twelve years in which to be recovered.
There is no limitation period applied to income tax, VAT or capital gains tax owed to HM Revenue & Customs. They are entitled to chase any debt at any point in time. This also applies to the Department for Work and Pensions applicable to benefit overpayments. They are entitled to deduct any arrears from your existing benefit payments without court action and without your permission.
How do I know if my debt is statute barred?
By payment into the debt
You must not have made any payments towards the debt during the limitation period.
By written confirmation of the debt
You must not have written or emailed your creditor acknowledging the debt during the limitation period.
By legal action
Your creditor must not have already begun legal proceedings by issuing a County Court Judgement against you during the limitation period.
If you meet all of these criteria then your debt will be statute barred.
If you’re not sure whether your debt is statute barred you shouldn’t recommence making any payment your creditor is pursuing. By doing so you will discredit the limitation period and become responsible for the debt again.
In this situation it is essential not to acknowledge the debt. However, you may ask them to provide proof that the debt is accountable for according to the Limitation Act. It is the creditor’s responsibility to prove the debt is still active, not yours. Use the template letter at the end of this article to renounce the debt and make sure you send it by recorded delivery, as you may need proof of when it was sent and you should also keep a copy of the letter for reference. Never include any other contact details other than your postal address for correspondence. This will ensure you always have written evidence of all communication.
What should I do if my debt is statute barred or extinguished?
Nothing. If you’re certain the limitation period is complete and your creditors haven’t contacted you regarding the debt then you can ignore the debt and carry on with your life unaffected.
What if creditors are still requesting payment?
If your debtors have contacted you regarding repayment or are seeking acknowledgment of the debt the first thing to confirm the debt is definitely statute barred. You can do this by checking your credit report. Any outstanding debt will be referenced there. You can also check your bank statements to confirm the last time you made a payment toward the debt.
If you’re certain that the debt is now statute barred you are entitled to take no further action.
If you’re still not sure whether the debt has become statute barred then you can write to the creditor using the template letter shown at the end of this article asking them to provide proof that the debt isn’t statute barred. If they can provide written proof that you have made a payment during the limitation period or that you have acknowledged the debt then you must start making repayments or find an alternative method of meeting their demands. You shouldn’t feel obligated to pay more than you can realistically afford. There are a variety of ways to manage debt and talking to a specialist debt management company will certainly help. They can guide you in finding the most appropriate and affordable way to handle any debt problems in line with your current income and outgoings.
If your debtors continue to pursue you after the limitation period has passed you may be able to receive help from the Financial Ombudsman. If you choose to seek their assistance you must be able to present all relevant paperwork for the debt in question and any proof relating to the statute barred legislation.
When does the limitation period start?
The limitation period commences from the most recent date of any of the following:
At the time of the last acknowledgment of the debt
This should be in a written format and be signed. It is also becoming acceptable that email can constitute written acknowledgment. In the case of a joint debt written acknowledgment only applies to the party who wrote and signed the letter.
Acknowledgment of the debt also applies to any third party communication made on your behalf. If you have utilised professional services from financial advice or debt management companies these are considered acknowledgment of the debt and negate the limitation period.
Any written correspondence from the creditor does not count as acknowledgement, nor does any telephone communication.
When contacting your creditor you must clearly state that you don’t owe the debt. By doing so you are refuting any claim they may be making in a manner that cannot be considered acceptance or acknowledgment of the debt.
At the time of the last payment towards the debt
The last payment by you, or by either party in the case of a joint debt, will count as the starting date of the limitation period.
Any payments made by a financial advisor, agency or debt management service or company will also count towards this option.
The earliest date court action could have been instigated
Depending on the type of debt, there will generally be a defaulting term laid out in the terms and conditions of the loan. This could be after a specific number of missed payments or a specific amount of time that the debt has been in arrears. At such a point your creditor would have been entitled to commence court proceedings to retrieve the debt. That could also be the date that the limitation period would start. The creditor must not have commenced court action at that time for the debt to be statute barred. If court action has been instigated at any time during the perceived limitation period then the debt can never become statute barred or extinguished.
For types of debt other than typical loan options, for those without specific terms and conditions, then the beginning of the limitation period can be difficult to determine. You should seek guidance in establishing the exact date and if the debt is still active.
What can a creditor do after the limitation period has passed?
Once the limitation period has passed the creditor has no legal power to recover the debt. If you have made it clear that the debt is now statute barred your creditor should stop contacting you.
If the creditor isn’t regulated by the Financial Conduct Authority then they are still entitled to contact you and chase the debt through any alternative methods available to them.
Can a creditor start court action after the limitation period has passed?
Yes. However, if the creditor begins proceedings after the limitation period has passed then you can use the fact that your debt is statute barred as your defence against the case. If the debt is proved to be statute barred then the court will cancel the case immediately.
If you receive any paperwork from the courts regarding legal action it is imperative you respond and return it on time. Once you have returned the required paperwork it is up to the creditor to provide evidence to show the debt isn’t statute barred according to the rules laid out by Limitation Act. If they can’t prove the limitation period hasn’t passed then the court action will be rejected and cancelled. If they can prove the debt is still active then the court action will continue and you will be liable for any judgement sanctioned in order to repay the debt.
If you fail to reply to the court’s initial request they will hold no reference to the debt’s limitation period and that the debt has become statute barred. Without this they will continue to process the court order and pursue further action. This could come in the form of a liability order, a County Court Judgement or alternate method of debt repayment. You may be able to refute and cancel the proceedings but these types of legal matters can prove difficult without professional guidance and often incur additional court fees you may be liable for. It will save you a great deal of time and money to reject the application as soon as you receive initial notice of proceedings.
Statute Barred Letter Template
The following letter template can be used to reject applications of payment on a debt you believe to be statute barred or to request proof from your creditor to the contrary. When contacting your creditor make sure you keep a copy of your letter and always send by registered post.
(Add account number or debt reference number)
I do not admit liability for this debt, and I do not intend to make any further payments to it for the following reasons:
- The earliest point at which you could have sued for the full balance owing to this debt was more than six years ago.
- No payment has been made to this debt by me, any joint account-holder, or any third party acting as my agent for a period of more than six years.
- No written admission of liability for this debt has been made by me, or any third party acting as my agent for a period of more than six years.
This debt is therefore statute barred and any court claim to recover it will be defended on this basis. If you have evidence that this debt isn’t statute barred, please send it to me within 21 days. Otherwise, please confirm in writing that you won’t pursue me further for this debt.
(Add your signature)
For professional advice regarding your finances, please do not hesitate to contact one of our friendly advisers on 0808 2085 198.