People who struggle with debt often find themselves grappling with questions about the legalities surrounding it, like how long they can be pursued for, and the implications of exceeding the time limits.
Can debts be written off in the UK?
Yes, debts can be written off in the UK, although debt clearance, or the process by which outstanding debts become ‘statute barred’ or legally extinguished, is governed by specific regulations and statutes in the United Kingdom.
At the heart of this process lies the concept of time limitations – the period during which creditors or debt collectors can actively pursue repayment from people who owe money to them. Understanding these limitations is essential if you’re looking to manage your debts effectively and protect your financial wellbeing.
How much debt do you have?
How long before debt is written off in the UK?
The pursuit of debts in the UK is governed by legislation that sets out specific time limits within which creditors can take legal action to recover outstanding sums. These depend on where you live.
England, Wales, and Northern Ireland
In England, Wales, and Northern Ireland, the Limitation Act 1980 establishes a six-year limitation period for most types of debts. This means that creditors have a maximum of six years from the date of the debt’s occurrence to initiate legal proceedings against the debtor.
Scotland
In Scotland, the Prescription and Limitation (Scotland) Act 1973 provides for a slightly shorter prescription period of five years.
However, it is crucial to note that during this time, creditors can still undertake debt collection activities, including sending reminders, making phone calls, or negotiating repayment arrangements with debtors.
What debts are included in the time limit?
The time limit for pursuing debts applies to a wide range of unsecured debts, or those not secured against an asset.
Debts within that time limit include:
- Council tax arrears
- Utility bill arrears
- Personal loans
- Credit card debts
- Catalogue repayments
- Payday loans
- Overdrafts
- Benefit overpayments
- Store card debts
While most unsecured debts fall within the time limit, certain exceptions exist, so it’s important that you understand which debts are subject to the time limit and which may be exempt if you’re hoping to avoid repayment once a debt is statute barred.
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Are there exceptions to the time limit?
Secured debts that use an asset as collateral, like a mortgage, are subject to different time limits compared to other statute barred debt. Again, the time limits depend on where you live in the UK.
England, Wales, and Northern Ireland
In England, Wales, and Northern Ireland, creditors can pursue mortgage shortfalls for up to 12 years, with interest enforceable for six years.
Scotland
In Scotland, the pursuit period for unpaid mortgages extends to 20 years, with interest enforceable for five years.
Certain other debts are also exempt from the time limit, and can be chased indefinitely. Debts with no time limit include:
- Income tax
- VAT
- Tax credit overpayment
- Capital gains tax debts owed to HM Revenue & Customs
Because these debts don’t have a time limit for pursuit, HMRC can pursue indefinitely the people who owe money, regardless of how long the debts have been outstanding.
When does the debt time limit start and end?
The time limit for debt pursuit begins when the creditor’s legal right to take action against the debtor arises. This typically occurs upon the occurrence of the “cause of action,” which is the event or circumstance that gives rise to the debt.
For example, in the case of a loan agreement, the cause of action may arise on the date the loan is disbursed.
Once the time limit expires, the debt becomes statute-barred or prescribed, meaning that the creditor loses the legal right to enforce payment through the courts. To ensure that a debt becomes statute-barred, two conditions must be met:
- The person in question has not acknowledged or admitted to owing the debt.
- The person in question has not made a payment towards the debt.
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What if I think I’m being chased for a debt after the time limit?
After the expiration of the time limit, creditors are legally prevented from pursuing further repayment through legal action. This means that they cannot initiate court proceedings or obtain a County Court Judgment (CCJ) against you for the outstanding debt.
It’s important to note that when a debt becomes unenforceable, it doesn’t just disappear. You may still receive communications from creditors attempting to collect the debt, although you have no legal obligation to repay it.
If you feel you’re being harassed by creditors after the time limit has expired, you have the right to report the harassment to the appropriate regulatory authorities.
Should I wait for debt to be written off?
If you’re nearing the end of the time limit, you may be tempted to wait for the relevant debt to be written off automatically. You should be careful if you find yourself in this situation, as creditors often pursue all available avenues to recover the debt before it becomes unenforceable.
The people you owe money to may demand repayment just before the end of the time limit. Also, waiting for debt clearance may also have an impact on your mental health and wellbeing, as constant communication from creditors can cause stress and anxiety.
Creditors can still take legal action against you up to the date the time limit expires, preventing the debt from becoming statute-barred or prescribed. It’s in your interest to explore debt solutions and repayment options to address your financial obligations proactively, rather than relying on having a debt written off automatically.
How does debt impact my credit file?
Missed payments and outstanding debts can have significant implications for your credit file. Late or missed payments typically remain on credit files for six years, impacting credit scores and future borrowing capabilities.
However, it is important to distinguish between the six-year time limit for statute-barred debts and the duration that debts remain on credit files.
Even if a debt or credit agreement disappears from a credit file after six years, it may still be enforceable if you have acknowledged it or attempted to make a repayment within that time.
Can creditors take legal action against me for unpaid debt?
In certain circumstances, creditors may resort to legal action to recover outstanding debts. This may involve obtaining a County Court Judgment (CCJ) against you, which can have long-lasting repercussions on your credit file and ability to obtain credit in the future.
Legal action is typically considered a last resort, and creditors are required to explore alternative means of debt recovery before initiating court proceedings, whether that’s affordable repayment plans or passing the debt to a debt collection agency.
You should be given plenty of opportunities to repay your debts through negotiation and repayment arrangements before legal action is pursued.
