Statute Barred Debts

Overview

In order to commence court action to recover a debt, creditors must do so within a period of time set down by law (the Limitation Act 1980). If time runs out, they may not be able to recover the debt through the court as it might be ‘statute barred’

The law in England, Wales and Northern Ireland differs to the law in Scotland. In England, Wales and Northern Ireland: If a creditor does not initiate court action in time, the debt will become ‘unenforceable’ or statute barred. The debt will continue to exist but statute law dictates that a creditor cannot obtain a county court judgment and subsequently not be able to recover the debt through the courts. Depending on the debt alternative action may be possible.

In Scotland: If a creditor does not initiate court action in time, the debt will become extinguished. Once a debt is extinguished, the law states that the debt no longer exists and therefore the creditor can no longer pursue you for it.

Limitation Periods

The amount of time before a debt becomes statute-barred or extinguished will depend on the type of debt and the period of time the law has given to pursue that particular type of debt. This is known as the ‘limitation period’. In England, Wales and Northern Ireland the limitation period for the majority of most common debt types is six years, for example credit or store cards, personal loans, payday loans, gas or electricity arrears, council tax arrears, benefit overpayments, rent arrears, catalogues and overdrafts. For the following types of debt the limitation period varies:

  • For Mortgage shortfall debt the limitation period is twelve years for the capital element and six years for the interest element
  • For Personal injury claims the limitation period is three years
  • There is no limitation period for Income tax, VAT and capital gains tax debt owed to HM Revenue & Customs

A debt will never become statute barred if your creditor took court action against you and obtained a county court judgment prior to the limitation period ending.

In Scotland the limitation period for the majority of most common debt types is six years, for example credit or store cards, personal loans, payday loans, gas or electricity arrears, housing benefit overpayments, catalogues and overdrafts. For the following types of debt the limitation period varies:

  • For Mortgage shortfall debt the limitation period is twenty years for the capital element and five years for the interest element
  • There is no limitation period for Income tax, VAT and capital gains tax debt owed to HM Revenue & Customs
  • For council tax debt and some DWP benefit overpayments the limitation period is twenty years

A debt will not become extinguished if a decree has already been obtained by your creditor prior to the limitation period ending.

Acknowledgement

The limitation period is activated by acknowledgement of the debt in the following ways:

  • Each time you write to your creditors acknowledging your debts. The format must be a signed letter from you to your creditors. An email is also counted as a written acknowledgement in most cases
  • If a third party (with your consent) such as a debt or advice agency writes to your creditors on your behalf, this will be regarded as an acknowledgement
  • Each time you make a payment towards your debt this will be regarded as an acknowledgement
  • Each time a third party, such as a debt management company makes a payment on your behalf, this will be regarded as an acknowledgement

Joint debt

if you have a debt in joint names, written acknowledgment will only activate the limitation period for the person who has signed the letter. If a payment is made by either person named on the agreement the limitation period will be activated by both parties.

The limitation period will not be reactivated if:

  • If you send a letter to your creditor clearly stating you don’t owe the debt
  • A creditor sends a letter to you (but see default notices under county court action below)
  • You speak to your creditors on the phone

Contact from your creditors

If you are certain that your debt is statute barred, you should write to the creditor to explain that you won’t be making any further payment as the debt is statute barred under the Limitation Act 1980. You should request that they stop contacting you about the matter, or, if they believe the debt is still owed, ask them to provide you with evidence.

If a creditor has not contacted you for some time, it is possible they will make contact just before the expiry of the limitation period. Whilst you have the option to ignore any contact, in the hope the limitation period expires, this is not considered to be best practice as court action may be commenced by your creditor before time runs out.

County Court Action

The law states, since a ruling in the court of appeal, that a consumer credit agreement debt becomes statute barred six years after the expiry of a default notice (five years in Scotland) Doyle v PRA group Ltd UK January 2019. The expiry of a default notice (normally 14 days after a default notice has been sent) is the earliest a creditor can start court action to recover a debt. Prior to this the limitation period was based on the earliest date of which the account could have defaulted, regardless of when the default notice had been issued.

If you receive paperwork from the court for debt you believe to be statute barred or extinguished you will need to complete the defence form within the time limit stating the debt is statute barred. If you can provide evidence to support your defence, the creditors claim should be dismissed. It might be necessary to attend a hearing at the court if more information is required, but the onus is on your creditor to evidence that the debt is not statute barred. For example they may be able to prove they are within the limitation period by providing copies of letters you’ve sent or providing proof that you have made a payment. Their claim will be dismissed if they cannot evidence that they are within the limitation period, but if they can you will receive a county court judgment.

Expiry of the limitation period & the FCA

Once the limitation period has ended a debt will become statute-barred (or extinguished in Scotland) and the limitation period will not be reactivated, even if a payment is made.

In England, Wales or Northern Ireland debts still technically exist after becoming statute barred, but a creditor is unable to enforce the recovery through the court. However if the debt is regulated by the Financial Conduct Authority (FCA) you should no longer be contacted by the creditor. The FCA have said it is unfair for a creditor to continually pursue you, when you told them you have no intention of paying. Debt the FCA regulates will include; credit or store cards, payday loans, personal loans, overdrafts and catalogues.

Credit Reference files

Some debts might still appear on your credit file following the expiry of the limitation period, even though the debt is statute-barred. As this information is visible to other lenders it can make it harder to obtain any future credit.