If you owe money to an individual or business, they have a certain amount of time to take legal action to recover the debt before it becomes unenforceable or ‘statute barred’.
This is known as the limitation period and, depending on the type of debt can be anywhere from six to 12 years. But despite these clear time limits, it can be difficult to know when the limitation period on a debt starts and, more importantly, how to know when a debt is definitely statute barred.
What is statute barred debt?
If you owe money to an individual or business, they will only have a certain amount of time to take legal action against the debt before it becomes statute barred. This essentially means they can no longer take you to court to force you to pay what you owe.
The Limitation Act (1980) is the main piece of legislation that outlines the time limits for taking legal action against each type of debt, including personal loans, mortgage shortfalls and even personal injury claims.
However, even if a debt is statute barred, it will still exist and continue to appear on your credit file which can affect your ability to get further credit. This also means your creditor can use other forms of debt collection to recover the money owed.
What is the limitation period for different types of debt?
Most unsecured debts – which are debts not secured against assets – have a limitation period of six years. This includes payday loans, personal loans, credit cards, and utility bills.
However, there are some exceptions to this rule, and it’s important you know how long your creditor can take legal action against you for an unpaid debt.
Mortgage shortfalls
If don’t keep up with your mortgage payments and your home is repossessed, the money from the sale of the property will go towards repaying the debt.
However, if the money made from the sale of the property isn’t enough to repay the debt, you will be responsible for the remainder of the balance which is more commonly known as the ‘mortgage shortfall’.
This kind of debt has a longer limitation period of 12 years while the interest on the debt has a limitation period of six years.
Benefit overpayments
If the Department for Work and Pensions (DWP) miscalculates your benefits payments, you can receive more money than you are entitled to.
This can happen for various reasons. For example, you might have provided incorrect information on your application or forgot to inform the benefits office of a change of circumstances.
The limitation period for benefit overpayments is six years, but the DWP has extra powers to recover the money owed and will usually reclaim the debt through future benefits payments until your outstanding balance has been repaid.
Council tax arrears
If you have council tax arrears, the debt will become statute barred after six years.
However, because most local councils are quick to take legal action over unpaid council tax, it rarely becomes stature barred.
Usually, your local council will take you to court to force you to repay the debt after a couple of missed payments and, in some cases, will take the money directly from your wages or benefits.
County Court Judgments
If your creditor has already taken you to court over an unpaid debt and issued a County Court Judgment (CCJ) against you, the limitation period will no longer apply.
This essentially means the debt will never become statute barred and your creditor will be free to take legal action against you indefinitely.
However, if your creditor hasn’t taken action against an unpaid CCJ in the last six years, they may need to seek permission from the court to enforce it.
Child maintenance
If you owe money to the Child Maintenance Service (CMS) or the Child Support Agency (CSA), the rules can get a little complicated.
For example, while there is no time limit for the CMS or CSA to take legal action, they only have six years to use certain types of enforcement action, such as bailiffs, once an order is in place.
The CMS and CSA also have greater powers to recover the money owed and may resort to taking the money directly from your wages, benefits, or bank account.
Income tax and VAT
If you owe money to HM Revenue & Customs (HMRC), there is no limitation period and the debt will never become statute barred.
National Insurance is the only exemption to this rule, however, as it’s not classed as a tax so will become statute barred after six years.
When does the limitation period start?
The limitation period usually starts from when the cause of action arises or, in other words, the first date from which legal proceedings could have been brought against you.
For most debts, this is when a default notice was first sent to you. However, this can be years later if an individual didn’t know they had a potential legal claim until other factors, such as medical issues, came to light.
Some creditors may also delay sending you a default notice to prolong how long it takes for your debt to become statute barred.
The limitation period will be reset if any of the following happens:
You acknowledge the debt
If you write to your creditor and acknowledge the debt in writing (including text, letter, or email), the limitation period will reset.
Even if you’ve never admitted to owing the debt, simply acknowledging it can be used against you as proof that you owe the money.
You make a payment towards the debt
If you make a payment towards the debt – whether it’s £1 or £100 – the limitation period will reset.
For example, if you make a payment towards an unsecured debt for the first time in four years, the six-year limitation period will be reset and you will have to wait another six years until it becomes statute barred.
There is also no limit to the number of times the limitation period can be reset, so each time you acknowledge or make a payment towards a debt, the timer will go back to the beginning again.
For joint debts, the limitation period will only be reset for the person who wrote to the creditor but will be reset for both of you if one of you makes a payment.
What is a default notice?
If you have missed payments, your creditor may send you a default notice threatening you with legal action.
This is important because a creditor can’t demand full payment for a debt or record a default on your account unless they have issued a default notice first.
The default notice will give you 14 days to make up for missed payments. Failure to pay the full amount owed or negotiate a repayment plan within this time will give the creditor permission to seek further court action.
For debts covered by the Consumer Credit Act (1974), such as credit cards, personal loans, and store cards, your creditor must legally send you a default notice before taking legal action.
How can I check if a debt is statute barred?
If you need to check the status of a debt and there is a chance it hasn’t become statute barred yet, your best option is to call your creditor directly.
Remember, contacting your creditor in writing can count as you acknowledging the debt and will restart the limitation period. For example, if you write to your creditor claiming a debt is statute barred but got your dates wrong and the limitation period is still active, the clock will be reset.
Making a payment towards the debt will also reset the limitation period – even if it’s just a small payment or someone else making a payment on your behalf.
Can I still be chased for statute barred debts?
Often, statute barred debts are passed on to debt purchasers or debt buyers. These are companies that purchase bad or statute barred debts, hoping to collect more than they originally paid so they can make a profit.
However, despite them having no legal grounds to collect the debt, they have been known to pursue people by mail and phone and, in some cases, pressure vulnerable individuals into paying a debt they don’t legally have to pay.
Alternatively, your creditor may pass your statute barred debt on to debt collectors who have greater powers to pursue the money owed.
Even if the debt is expired, you must never admit to owing the money, make a payment towards the debt, or agree to a repayment plan as your creditor can use this against you to restart legal proceedings.
Will statute barred debt appear on my credit file?
Statute barred debt shouldn’t appear on your credit file because the limitation period for most debts is six years – the same length of time most debts stay on your credit reference file.
However, there are certain circumstances in which it may be visible to lenders, such as if your original account defaults.
This can make it difficult to get approved for further credit, such as a loan, mortgage, bank account, or even a phone contract.
Is it a good idea to wait for a debt to become statute barred?
The thought of waiting for a debt to become statute barred can be appealing – especially if you’re tired of dealing with constant threats of legal action or can’t afford to repay the full amount owed.
However, this can be an extremely stressful time for you as your creditor can initiate legal proceedings against you at any time during the relevant limitation period and if you are served with a CCJ, the debt can never become statute barred.
Most creditors will also try everything in their power to recover the money they are owed and won’t simply stand back while a debt becomes statute barred – especially if they are owed a large sum.
Furthermore, each time you miss a payment or your creditor takes legal action against you, this will cause further damage to your credit score.
So, if you’re considering waiting until a debt becomes statute barred, beware that this is a risky move that can leave a negative impression on your finances for several years.
Conclusion
When you owe money, your creditor will have a time limit to take legal action before the debt becomes statute barred. Depending on the type of debt, this can range from six years to 12 years.
Once a debt becomes statute barred, it is protected from legal action but still exists. This means your creditor can still try to recover the money owed through other means, such as debt collectors.
Creditors may still contact you about statute barred debt, and while you can choose to pay it if you wish, you are under no legal obligation to do so.
