When a debt has been outstanding for some time, with no payments being made or communication from the debtor, the debt can become what is known as ‘statute barred.’ When debts are statute barred it means they’re no longer enforceable, and the debtor is not required by law to pay the amount outstanding.
The Limitation Act, 1980, places a time limit of six years on many outstanding unsecured debts, and 12 years on some mortgage arrears. In England, Wales and Northern Ireland, the debt remains in existence but a creditor is unable to initiate court proceedings to recover it. In Scotland, a debt that is statute barred is ‘extinguished,’ which means that it no longer exists in law.
The rules regarding statute barring
England, Wales and Northern Ireland
A debt may be statute barred after six years if the debtor has not acknowledged the debt, either by writing to the company or making a repayment, although there can be exceptions.
- The limitation period for mortgage arrears is 12 years, but six years for mortgage interest
- Debts owed to HM Revenue and Customs have no limitation period
- Personal injury claims generally have a limitation period of three years
In Scotland, the majority of unsecured debts are statute barred after five years, with certain exceptions – these include the capital aspect of mortgage repayments, and some overpayments of benefits. Council tax debts are not statute barred until 20 years have passed.
When does the limitation period begin?
The limitation period on simple contract debts such as credit cards, store cards, and personal loans, begins on the date the creditor is able to take legal action to recover their money.
This is the date they have a ‘cause of action,’ and it should be stated in the original contract – possibly after two or three missed payments, for example. For other debts with no fixed repayment period, such as bank overdrafts, it can be more difficult to establish when the limitation period begins.
Criteria for statute barred debt
The following criteria are generally applied to establish whether unsecured debt, such as credit or store cards, is statute barred:
- Six years have passed since a repayment was made, and
- The debtor has not acknowledged that the debt exists, either by payment or correspondence with the creditor, and
- The lender has not obtained a court judgment or decree in relation to that debt
Once a debt has been acknowledged by the debtor, the limitation period begins again from the date of the acknowledgement. The Limitations Act came into existence, not to encourage avoidance of debt, but to prevent creditors pursuing debtors through the courts after a long period of time has passed.
John Baird is a personal finance and insolvency expert from Scotland Debt Solutions. He specialises in advising people on how to manage their money and deal with their personal debt problems.