What is statute barred debt?
I’m frequently asked by clients about statute barred debts and a good place to start would be with some kind of definition.
Under the 1980 Limitations Act, a debt is no longer enforceable by a creditor against a debtor because the period of time in which a debt can be chased for payment has passed. So you might be wondering then what “enforceable” means in these circumstances. It means that the creditor cannot pursue you for a statute barred debt through the courts. You can’t be “forced” to pay through legal action.
There is often a misunderstanding that is worth mentioning at this point. A lot of people think then when a debt becomes statute barred, they no longer owe the debt-that it is in some way written off. That is in fact not the case at all. You would still owe the money and you may decide to pay the debt off or reach an arrangement with the creditor if you wanted to.
How long is the limitation period and when does it start running?
There are different limitation periods for different types of debt but I shan’t over-complicate this. I’m going to assume that if you are reading this you are concerned about what this means for you in terms of personal unsecured debts like credit cards, personal loans, current account overdrafts, catalogue accounts, store finance agreements etc.
The statute of limitation period is 6 years.
The limitation period starts when the creditor becomes eligible to take court action for recovery of the debt. Obviously this will be some time after missing making payments against the debt, often just 1 or 2 payments. The 6 year period then starts. During that 6 year period you must not have made any payments towards the debt and you must not have written to the creditor admitting you owe the money. If at any point you do then the clock starts ticking all over again from that point forward.
I want to make a very important point about this. Often times creditors will telephone you to try and get you to make a payment and frequently they will employ some rather questionable tactics to squeeze a payment from you. They will sometimes tell you things that aren’t true in an attempt to intimidate you and scare you into parting with your money. A creditor won’t hesitate to tell you, for example, that just by you talking to them on the phone means you have broken the statute barred period and that the 6 year period starts all over again. That IS NOT the case. As I said earlier, you must have acknowledged the debt, in writing, for the limitation period to start running all over again. Don’t fall for their bully boy tactics!
Are there debts that don’t become statute barred?
Yes. If a creditor obtains a County Court Judgement (CCJ) against you then that debt is no longer covered by the Limitations Act 1980. If you are concerned that a creditor may have taken action against you that you perhaps don’t know about then you should get copies of your credit files from the 3 main credit reference agencies and check with the Trust Online website for a record of any CCJs against you. There is a small fee payable to Trust Online and to the main credit reference agencies, Equifax, Experian and Callcredit.
There are some other types of debt that either have a longer limitation period or don’t become statute barred at all. For example, the capital element of a shortfall to a mortgagee following a sale of your property is not statute barred until 12 years have passed. The Council for Mortgage Lenders Code directs its members to apply a 6 year rule whereby it must have commenced action within 6 years from the start of the limitation period. If you owe income tax or VAT to HMRC they do not become statute barred at all.
Student loans, benefit overpayments or child support payments are beyond the scope of this article and you should seek further guidance if you are concerned about whether those debts become statute barred or not.
Do my debts fall off my credit file at the same time they become statute barred?
The short answer is not necessarily. A debt will fall off your credit file 6 years from the date of default. You may have made payments or acknowledged the debt following default and hence the 6 year limitation period may not have started or have re-started long after the date of default.