When you have an unpaid debt, there is a law that determines how long the creditor (the person you owe money to) has to take legal proceedings against you to recover payment. However, the name of this process differs depending on where you are in the UK.
In England, Wales, and Northern Ireland, it’s called the statute of limitations. In Scotland, it’s known as prescription. This can sound a bit complicated, especially when financial jargon comes into it, but it’s really quite simple.
What is a statute of limitations?
The Limitation Act (1980) sets out the time limit within which court action must occur in response to a debt. In England, Wales, and Northern Ireland, this is known as a statute of limitations.
In other words, after the time period laid out by the statute of limitations has passed, a claim can no longer be brought in court. It refers to any type of offense that could lead to court action, not just debt.
Once the statute of limitations on a debt expires, it becomes a statute barred debt. However, this doesn’t mean the debt no longer exists and the creditor can still take other, non-legal forms of recovery action against you to get you to pay what you owe.
The statute of limitations applies to all consumer credit agreements (those covered by the Consumer Credit Act 1974). This includes payday loans, credit cards, and personal loans. It typically begins on the date the contract was broken or the ’cause of action’ occured.
The statute of limitations for consumer debts is six years. However, there is no limitation period for debts owed to HM Revenue and Customs (HMRC), meaning they can be chased indefinitely.
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Is there a statute of limitations in Scotland?
In Scotland, the statute of limitations is referred to as prescription and The Limitation Act (1980) is replaced by The Prescriptions and Limitation (Scotland) Act 1973.
The conditions for a debt to become prescribed are the same as the conditions for a debt to become statute barred. This means that, for a debt to become prescribed at the end of the prescription period, the debt must not have been acknowledged in writing or paid by you or anyone you have a debt in joint names with and a relevant claim must not have been made.
The time limit for a debt to become prescribed is also different in Scotland. So if you’re being chased for payment of a debt anywhere in the UK, it’s important that you know how long legal action can be taken against you before the deadline expires.
What is the length of the statute of limitations (Scotland)?
The biggest difference between a statute of limitations and prescription is the time limit for which debts can be legally chased.
As previously mentioned, it’s six years for most debts in England, Wales, and Northern Ireland. In Scotland, the relevant limitation period for unsecured debts is five years.
This means that, if you write to your creditor to acknowledge the debt or make any repayments within the five-year period from which legal action could be arose, the prescriptive period will restart. When this happens, you’ll have to wait another five years until it becomes prescribed.
It’s worth noting that while most debts are not legally enforceable after five years, they might still be visible on your credit file.
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Can the prescriptive period be extended?
The Prescription (Scotland) Act 2018 introduced a new change that means a prescription period can now be extended.
However, this can only happen by agreement after the prescription period has started and before it expires, by a period of no more than one year, and only on one occasion in relation to the same obligation.
This gives both parties more time to resolve a dispute without immediately resorting to court proceedings.
What is the prescription period for council tax arrears and mortgage arrears?
We’ve mentioned that the prescriptive period for unsecured debt is six years. However, the rules differ for other types of property debt, particularly council tax arrears and mortgage shortfalls.
The longest prescriptive period is for mortgage debt (capital) and social security benefits at 20 years. The interest accrued on mortgage capital debt, on the other hand, can only be chased for five years before it becomes prescribed, like most other debts.
The other debt subject to the 20-year prescriptive period is council tax arrears. However, it’s worth noting that, in most cases, local councils won’t wait 20 years for the time limit on unpaid council tax to run out and will likely take immediate action.
What happens when a debt becomes prescribed?
Once a debt becomes prescribed, it is no longer recoverable and your creditor won’t be able to contact you or take legal action against you (e.g. serve you with a court order) to collect payment.
However, while a statute barred debt in England, Wales, and Northern Ireland still exists, a statute barred debt ceases to exist in Scotland. This means that the people you owe can’t take any further action to recover payment.
Additionally, you might be able to ask for your money back if you recently made a payment to the debt they’re chasing you for.
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Can a lender still start court action after the limitation period has expired?
The Financial Conduct Authority (FCA) states that a creditor 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 your creditor has initiated legal action over a debt you believe is statute barred, the first thing you must do is ensure the time limit on the debt has expired. To do this without formally acknowledging it (which resets the timer), you can send a ‘prove it’ letter which essentially asks them to provide evidence that not only is it yours, but it is still payable.
If a creditor continues to contact you about a prescribed debt after you’ve sent a letter, you can submit a complaint. If you’re not satisfied with the response to your complaint, you can escalate it to the Financial Ombudsman Service.
Just because you don’t recognise a debt, it doesn’t mean it’s not yours to repay. For example, your original creditor might have sold it to a debt collection company that has now reached out to you for payment. However, while rare, it could also be a case of mistaken identity, especially if you have a common name or share a birthday with the person whose name the debt is in.
Remember, if you acknowledge a debt in writing when it’s not yet prescribed, this will reset the limitation period and you’ll need to wait another five years until it becomes unenforceable. The only way to avoid this is to call the creditor directly and request more details about the debt account.
If you receive a court summons over a debt you think is prescribed, you should seek legal advice immediately as you might need to attend a court hearing. The court should dismiss the case if it’s discovered that the debt is indeed prescribed but if you fail to attend, the court could instruct you to pay it, even if you didn’t originally owe it.
How can I check if a debt is prescribed?
It’s important not to write to your creditor to ask whether or not a debt is prescribed. This will reset the prescription period and, if it’s a consumer debt, you’ll have to wait another five years until it becomes legally unenforceable.
Making a payment towards the debt will also reset the limitation period back to the beginning again – even if it’s just a £1 payment or a friend or family member makes a payment on your behalf.
Instead, look for the date you last made a payment on your bank statement or check for any letters or emails to and from the creditor to determine whether you’ve had any contact with them in the last five years. It also doesn’t count as an acknowledgement if you call your creditor directly.
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Where can I get more information about prescribed debt?
If you have an unpaid debt and you’re not sure whether it’s prescribed, it’s important not to pay or acknowledge it in writing as this resets the timer back to the beginning again.
Instead, you can reach out to a debt expert who will assess your circumstances and inform you of your options for querying a prescribed debt. They won’t be able to tell you if a specific debt is prescribed, but they can recommend options for dealing with a debt if you discover it’s still enforceable.
Living with unaffordable debt can be worrying, but it doesn’t need to be. By familiarising yourself with your rights, you can be confident you’re making the right decision to deal with your money worries in a way that works for you.
Conclusion
In Scotland, a statute barred debt is known as a prescribed debt. The conditions for a debt to become prescribed are the same as they are for becoming statute barred, the only difference is how long the process takes.
If a consumer debt isn’t paid or acknowledged in five years, it will become legally unenforceable. It also ceases to exist, which means your creditor can’t take any further action against you to recover payment.
Always reach out for expert advice if you’re being chased for a debt that you can’t afford to repay. There are many options that could help you repay what you owe in a way that’s much more manageable for you, whether that’s a formal debt solution or a simple budget restructure.
