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Statute Barred Debt – All You Need to Know with Tips, Loopholes, FAQs & More
A debt becoming statute-barred isn’t something that happens often but it’s definitely something that you should be aware of.
While it’s fairly clear after how long of a period most debts become statute-barred, some periods can vary depending on the type of debt and where you reside.
Today, I’ll be discussing statute-barred debt and everything you need to know about how it works.
What is Statute-Barred Debt?
If your creditor takes too long to take any action to recover their debt from you, then your debt becomes statute-barred.
This means that your creditor is now not allowed to pursue court action against you in regards to your debt.
It technically does not mean that your debt is “written off” since it does still exist. However, it does become unenforceable.
As I mentioned earlier, how long it takes for a debt to become unenforceable depends on the type of debt as well as where you are in the UK.
The period that is used to assess whether or not a debt has become unenforceable is known as the Limitation Period.
How Do I Know if My Debt is Statute?
You can figure out if your debt has become statute by determining whether the limitation period has been completed for it or not. The limitation period is the period which defines how long it has been since a creditor has attempted any sort of action to recover their debt from you.
For most types of debts, the limitation period is six years. For some debts, it’s twelve years such as mortgage shortfalls.
Keep in mind that a debt cannot become unenforceable if a CCJ has been taken out against it.
The main confusion regarding the limitation period occurs due to the fact that many people are unaware of when it starts and how it can be reset.
The UK Statute of Limitations Act 1980 states that the limitation period starts from the ‘cause of action’. It’s important to do your research when it comes to the cause of action since it’s not the same for all types of debt.
For simple unsecured credit debts such as credit cards or personal loans, the cause of action is typically when your agreement states that the creditor has the right to pursue court action against you.
For certain credit agreements, this may be after you have received a default notice and that default notice has expired.
Once your limitation period starts, it will be six years until your unsecured debt becomes statutorily-barred.
Keep in mind that your limitation period can be reset. Your limitation period will keep on running without being reset if:
- You or anyone else owing the debt (in the case of a joint debt) has not made any payments to your creditor.
- You have not made any kind of written acknowledgement towards your debt.
- Your creditor has not taken court action against you, e.g., a County Court Judgment (CCJ).
If you feel that all of these conditions apply to you and this has been the case for six years after the cause of action, then your debt is statute-barred.
If your creditor contacts you after six years to recover their debt from you, then you can dispute their claim and say that they do not have the right since the debt has become unenforceable.
Keep in mind that once you dispute this with your creditor, you’re not the one responsible for proving that the debt has become statute-barred. The burden of proof is on your creditors to prove that the debt is indeed NOT statute-barred.
They will have to come up with some sort of proof such as a payment receipt or a written acknowledgement that you’ve made anytime over the course of the last six years.
They may even try to prove that the course of action was taken less than six years ago.
If they are able to prove that the limitation period has not passed six years, then you may have to make payments towards your debt.
However, if they are unable to do so, then your debt will become unenforceable.
If you’re having trouble with a creditor who thinks your debt has not become unenforceable, you can contact an independent debt charity such as National Debtline for advice.
The Financial Conduct Authority has also published the Consumer Credit Sourcebook which details whether or not a debt is being collected fairly.
To find out more about how to find out if your debt is statute, you can click here.
How Long Before an Unpaid Debt is Written Off?
This varies greatly depending on what type of debt it is.
Most unsecured credit debts become unenforceable after 6 years whereas the capital on a mortgage loan does not become unenforceable until after 12 years.
For an in-depth look into how long it takes for a debt to be written off, you can click here.
What is the Limitation Act 1980?
The Statute of Limitations or the Limitation Act of 1980 is an act of parliament that defines the time limits all creditors need to adhere to when pursuing debtors for their debts.
It gives information on what code of conduct should be for all types of debts as well as many different scenarios that may occur.
To read more about the Statute of Limitations in the UK, you can click here.
What Happens to Debt when You Go to Jail?
If you’re about to go to jail, you may want to get your finances in order. This is because your debts don’t just go away if you go to jail.
If you don’t address them in some way before going to prison, you may find that they’ve become an even bigger problem once you’re released.
If you’re sure you’re going to be sent to jail sometime in the future, I highly suggest contacting your creditor and asking them for a payment break or some other form of relaxation.
For more information on what happens to debt when you go to jail, you can click here.
What is a Default Notice?
According to the Consumer Credit Act of 1974, if you violate the terms of your credit agreement (for example, if you start missing payments) then your creditor has the right to take action against you.
Before they take any action, however, they are obligated to send you a notice known as the Default Notice. The default notice details how you’ve breached your agreement and what actions your creditor is thinking of pursuing such as legal action or the termination of your agreement.
You are usually given a period of 14 days to figure out your course of action. Paying the arrears typically stops creditors from taking any further action against you.
Even if you can’t afford to pay your arrears, it’s very important that you don’t ignore your creditors. Be communicative and explain your situation to them.
I’ve Accidentally Made a Payment to a Statute-Barred Debt. Does this Mean it has Become Enforceable Again?
Thankfully, no. Once a debt is statute-barred, it remains statute-barred no matter what you do.
You can still make payments towards it if you wish to pay it back regardless. However, if you’ve accidentally made a payment towards the debt after the limitation period has been completed (after 6 years or 12 years in the case of mortgage shortfalls), this does NOT refresh the limitation period.
Your debt will still remain unenforceable and your creditor still cannot take any court action against you.
When does a Statute-Barred Debt Get Removed from My Credit File?
As I mentioned earlier, for most types of debts, your debt is statute-barred after a six-year period since the Default Notice.
As it happens, the mention of your debts is also removed from your credit file after a six-year period since you defaulted on them.
Hence, when you get a default notice, this is recorded in your credit history. After that, if your creditor does not pursue any action in regards to that debt for 6 years, then your debt will become unenforceable and be removed from your credit file at the exact same time.
For more information on how statute-barred debt affects your credit score, you can click here.
What Should I Do if a Creditor is Contacting Me Regarding a Statute-Barred Debt?
If you’re sure that a debt is unenforceable, you should write a letter to your creditor and tell them this.
You must ensure to write that you “don’t accept any liability for this debt” and you “don’t intend to make payments towards it”.
This usually gets creditors to stop but if they don’t, you can report them to the FCA.
For more information on how to write a statute-barred debt letter, you can click here.
What are Some Actions that a Creditor can Take After My Debt is Statute-Barred?
As I mentioned earlier, once a debt becomes unenforceable, it cannot be refreshed even if you make a payment towards it.
The FCA has stated that it’s unfair for creditors to pursue debts that have become statute-barred.
Thus, if you’ve disputed a claim and stated that a debt has become unenforceable and your creditor has been unable to provide proof that it hasn’t, then they should stop contacting you.
This applies to most common types of unsecured credit debt such as credit cards, payday loans, personal loans, catalogues, etc.
Keep in mind that this applies to agencies and creditors regulated by the FCA. If your creditor is not regulated by the FCA, then they could still take some actions depending on where you live in the UK.
In England, Wales and Northern Ireland, even though your debt becomes unenforceable, it still technically exists.
A debt becoming unenforceable means that your creditor cannot take out a County Court Judgment (CCJ) against you and they also cannot push to make you bankrupt either.
However, if they are not regulated by the FCA, they may still contact you to ask you for payment.
There are also some creditors that can take action to collect their debts from you without ever needing to go to court.
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It’s not something that happens very often but it’s extremely important that you be aware of how a debt becomes statute-barred so you don’t end up paying debts you aren’t liable for anymore.