Statute barred debt

Statute barred (also known as time barred) means a debt cannot be recovered through the courts because there has been no payments or written acknowledgments made for a period of time. Different rules apply depending on whether you are in England and Wales or in Scotland. The rules can also be different according to the type of debt, some debts are not subject to limitation.
What is statute barred?

For a debt to become statute barred, there should have been no payments made and no written acknowledgment of the debt during the period.

For most unsecured debts, the period is six years in England and Wales, five years in Scotland.

Statute Barred

What constitutes acknowledgment?

It is a common misconception that there has to be no contact whatsoever between the debtor and the creditor, leading some people to ignore their creditors to avoid resetting the clock. Unless you specifically write something that constitutes acknowledgment of the debt (or make a payment), maintaining contact with your creditors does not reset the clock.

The following doesn’t usually constitute acknowledgment:
  • Asking the creditor to prove the debt.
  • Requesting a copy of the alleged credit agreement (a request under s.77/79 of the Consumer Credit Act).
  • Sending a request for information under the Data Protection Act (a Subject Access Request or SAR).
  • Sending a letter informing the creditor or anyone acting for them (such as a firm of solicitors or a debt collection agent or DCA) that an alleged account is in dispute, provided the letter is worded properly.
  • Responding to a letter before action or legal threat, provided the letter is worded properly.
The following can be construed as acknowledgment of the debt:
  • Making an offer to settle the debt, such as a lump sum offer, also known as a full and final settlement offer.
  • Making a monthly repayment offer or an offer of reduced or token payments.
Other communications, such as PPI reclaims and refunds could be construed as acknowledgment, so you have to think before you proceed with a reclaim.
Once a debt is statute barred, it cannot be un-barred, not even by making a payment, but you need to make sure you got the dates right to avoid resetting the clock.
When does the limitation period start?

CalendarThe period starts to run from the cause of action. This means when the creditor would be able to take you to court for not paying, and is usually after at least one missed payment.

It is often thought that the period starts from the date of the last payment made (provided there’s been no written acknowledgment), however, a creditor would have no cause to take action during the first few days or weeks following your last payment as they would have no way of knowing you would miss the next payment. This means the period may start a little later than you’d thought.

As a general rule, if your last payment was a contractual payment before you defaulted on the account, the clock would start to run from the day after your next missed payment. However, if your last payment was after you defaulted, such as a DMP, token or reduced payment, in that case it could be argued the clock would start from the date of your last payment.

For overdrafts, the cause of action is when the bank recalls the overdraft, which can be several months after the last payment into the current account was made. You will know when this happens because the bank will issue a final demand for the repayment of the overdraft. For small overdrafts made largely of charges, it can take a very long time for the bank to decide to close the account and recall the overdrawn amount, sometimes even years.

For short-term loans such as payday loans, the cause of action could be right after the repayment was due.

Note that defaulting on an account is not the same as when a default is recorded on your credit files. Although some creditors like to argue that the clock starts to run from the default date recorded, this date has nothing to do with limitation.
A recent case involved a judge ruling that the clock should start on the date a default notice was issued. This was a County Court judgment which does not set legal precedent and is in the process of being appealed.
Working out the exact date is only relevant if the creditor takes you to court right at the time the debt is becoming statute barred.
Court proceedings would reset the clock unless the debt was already statute barred at the time the claim was issued. The clock stops on the date the claim is issued.
The limitation period does not apply where judgment has already been obtained or the debt has been secured through a charging order.
Some types of debts, notably debts to the government such as benefits and tax credits overpayments, social fund loans and tax debts can be recovered by other means even when they are statute barred and cannot be recovered through the courts. It is possible to recover these debts via a Direct Earnings Attachment (DEA) or deductions from benefits claimed. Some credit union debts also fall into this category. In these cases, a  judgment (CCJ) is not required to start making deductions.
Limitation periods

Unsecured debts

These are the most common and include things like credit cards, bank loans, payday loans, catalogue accounts, overdrafts, utility bills from previous addresses, old mobile contracts and debts for services. The limitation period is 6 years in England and Wales and 5 years in Scotland, provided they haven’t obtained a CCJ or decree against you. In England and Wales, the debt still exists after 6 years, while in Scotland the obligation becomes extinguished.

Mortgage shortfalls

The cause of action would normally be after 2 or 3 missed payments. As a general rule, the limitation period would be:

  • England and Wales: 6 years for the interest part and 12 years for the capital part. With most shortfalls, the interest would have been paid from the proceeds of the sale and only the capital part would remain.
  • Scotland: 5 years for the interest part and 20 years for the capital part.

Other debts

  • County Court Judgments (CCJs) do not become statute barred, however, if  no action was taken within 6 years of obtaining judgment, then the CCJ cannot be enforced as per Section 24 of the Limitation Act 1980. In Scotland, creditors can have up to 20 years to start enforcing the decree.
  • DWP benefit overpayments are subject to the 6 year rule (including Scotland) for recovery through the courts, however, there is no limit to recover overpayments through deductions from benefits you are receiving or through Direct Earnings Attachment.
  • There is no time limit to recover VAT and income tax debt.
  • Different rules apply to council tax, student loans and other types of debt.
Pursued for statute barred debt?

Section 7.15 of The FCA Handbook states that a firm should not carry on pursuing a debtor after he has stated that he will not be paying a debt because it is statute barred.

Notwithstanding that a debt may be recoverable, a firm must not attempt to recover a statute barred debt in England, Wales or Northern Ireland if the lender or owner has not been in contact with the customer during the limitation period.
A firm must not continue to demand payment from a customer after the customer has stated that he will not be paying the debt because it is statute barred.

If you are being pursued for a debt you think it’s statute barred, you should write to the creditor stating this fact.

The onus is on the creditor to prove otherwise, for example, by showing proof of payment less than 6 years ago (5 in Scotland).

Statute Barred

 

Court proceedings and CCJs for statute barred debt
Creditors can still issue proceedings for statute barred debt. The may do this for the following reasons:
Statute Barred

  • They don’t know it’s statute barred. Debt purchasers buy debts in bulk and often have no way of knowing when a debt was last paid or acknowledged.
  • They hope to obtain default judgment. Many claims are ignored or sent to an old address, this is especially true of old debts where the debtor has forgotten all about them.
  • They hope you will admit the claim. Many people are not aware of the limitations on debts and may think that, if they had the debt and didn’t pay it off, they still have to pay it.
There is no database or records of statute barred debts, it’s a common misconception that the courts will not issue judgment for debts that are barred. A claim for a debt that is statute barred should still be defended.
If you get a court claim for a statute barred debt, you can submit a defence straight away. Statute barred is an absolute defence. See dealing with court claims.
If you get a CCJ in default (default judgment due to lack of response to a claim) for a statute barred debt, you should be able to apply to have the judgment set aside. Statute barred is an absolute defence. See CCJ set aside.
Limitation Act 1980 (England and Wales)

The time limit for actions based on simple contract applies to most consumer credit products except secured loans and mortgages.

 Time limit for actions founded on simple contract.

5 An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued.

S.6 of the Act applies to bank account overdrafts because, unlike most other forms of credit, they don’t have set repayment dates.

6 Special time limit for actions in respect of certain loans.

(1) Subject to subsection (3) below, section 5 of this Act shall not bar the right of action on a contract of loan to which this section applies.

(2) This section applies to any contract of loan which—

(a) does not provide for repayment of the debt on or before a fixed or determinable date; and

(b) does not effectively (whether or not it purports to do so) make the obligation to repay the debt conditional on a demand for repayment made by or on behalf of the creditor or on any other matter;

except where in connection with taking the loan the debtor enters into any collateral obligation to pay the amount of the debt or any part of it (as, for example, by delivering a promissory note as security for the debt) on terms which would exclude the application of this section to the contract of loan if they applied directly to repayment of the debt.

(3) Where a demand in writing for repayment of the debt under a contract of loan to which this section applies is made by or on behalf of the creditor (or, where there are joint creditors, by or on behalf of any one of them) section 5 of this Act shall thereupon apply as if the cause of action to recover the debt had accrued on the date on which the demand was made.

Prescription and Limitation (Scotland) Act 1973

In Scotland, debts subject to the Act are extinguished after five years, that means that, unlike in England and Wales where he debts still exist despite being non-recoverable through the courts, in Scotland they no longer exist.

6 Extinction of obligations by prescriptive periods of five years.

(1)If, after the appropriate date, an obligation to which this section applies has subsisted for a continuous period of five years—

(a)without any relevant claim having been made in relation to the obligation, and

(b)without the subsistence of the obligation having been relevantly acknowledged,

then as from the expiration of that period the obligation shall be extinguished:

FCA Consumer Credit Sourcebook

CONC 7.15

CONC 7.15 Statute barred debts

CONC 7.15.1
A debt is statute barred where the prescribed period within which a claim in relation to the debt may be brought expires. In England, Wales and Northern Ireland, the limitation period is generally six years in relation to debt. In Scotland, the prescriptive period is five years in relation to debt.
CONC 7.15.2
In England, Wales and Northern Ireland, a statute barred debt still exists and is recoverable.
CONC 7.15.3
In Scotland, a statute barred debt ceases to exist and is no longer recoverable if: (1) a relevant claim on behalf of the lender or owner has not been made during the relevant limitation period; and (2) the debt has not been acknowledged by, or on behalf of, the customer during the relevant limitation period.
CONC 7.15.4
Notwithstanding that a debt may be recoverable, a firm must not attempt to recover a statute barred debt in England, Wales or Northern Ireland if the lender or owner has not been in contact with the customer during the limitation period.
CONC 7.15.5
If the lender or owner has been in regular contact with the customer during the limitation period, the firm may continue to attempt to recover the debt.
CONC 7.15.6
A firm must endeavour to ensure that it does not mislead a customer as to the customer’s rights and obligations.
CONC 7.15.7
It is misleading for a firm to suggest or state that a customer may be the subject of court action for the sum of the statute barred debt when the firm knows, or reasonably ought to know, that the relevant limitation period has expired.
CONC 7.15.8
A firm must not continue to demand payment from a customer after the customer has stated that he will not be paying the debt because it is statute barred.
CONC 7.15.9
A firm must identify for prospective purchasers of debts arising under credit agreements or consumer hire agreements or P2P agreements those debts which it knows or ought reasonably to know are statute barred, so as to avoid a firm taking inappropriate action against customers in relation to such debts.

Letters for statute barred debts

If you are being pursued for a debt you think it’s statute barred due to not having been paid or acknowledged during the relevant limitation period, you should write to the creditor saying so.

Letter to be sent in England and Wales

Letter to be sent in Scotland

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