Do you have an old debt that you haven’t made payments to in a long time? Has it been a while since you last heard from your creditors and you’re wondering if you still have to pay them off? If so, then the statute barred rule may be of interest to you.
Statute barred debt in the UK is not something a lot of people are familiar with. It is something that the finance companies try to keep a lid on it because it can effectively see them lose out on substantial sums of money.
It’s all to do with a little-known law called the Limitation Act 1980. Having said this, it is not advisable to try and use the Limitation Act as an excuse to dodge paying your debts. Regardless of whether it has been a while since you last heard from your creditors, you still signed a legally binding contract when you applied for it and the debt is still there.
But what is statute barred debt and how is it relevant to your situation?
Let’s start with what is statute barred debt? Essentially, the Limitation Act gives a creditor a set amount of time to recover a debt. If they do not do take you to court within this time period the debt is said to be unenforceable. This is because the law does not considered it fair for the creditor to wait years before chasing a debt.
This will only apply if you are not making payments towards the debt and neither party have been in contact for a fixed amount of time. If you are making payments towards a debt through something like Debt Management Plans, however small, it will never become statute barred.
There are two different time frames that apply dependent upon the type of debt that you have. If you have unsecured debt such as loans, credit cards and home shopping catalogues then your creditors have six years to chase you. If you have secured loans or a mortgage then the time scale is much larger at twelve years.
The limitation period begins with either the last time you made a payment or the last time the debt was acknowledged. Scotland have a slight variation on this whereby creditors are only allowed to chase the debt for five years.
If your creditors do not start court proceedings within these time scales the debt is said to be ‘statute barred’ and they cannot enforce the debt.
There are a few exceptions to this rule and certain criteria have to be met. If you are wondering, ‘How do I know if my debt is statute barred?’ then read on. Statute barred debt in the UK can make use of the Limitations Act if:
All three of these criteria have to apply if you are going to use the Limitations Act as a way of not paying your debt. Take a look at our debt terms glossary to find out more about all the common jargon. However, this does not mean that the creditors can stop chasing you for the debt. After the six or twelve years has expired the debt is not written off, it is still there, it is just not enforceable any more. What matters is whether you have acknowledged it.
If your creditors have written to you or discussed it with you on the phone you can still claim the debt to be statute barred. It is acknowledging it by form of payment or writing where a statute barred ruling could not be enforced.
There are one or two other situations where the Limitations Act cannot be used:
The Limitations Act clearly states how long it before a debt can be written off in the UK. It is usually six years for unsecured debts such as credit cards and loans, and twelve years for secured loans and mortgages. The important thing for you is to not have acknowledged the debt in written form or by making any kind of payment. Even token payments of £1 are acknowledging that the debt exists, as is applying for PPI refunds on the account (You can apply for PPI once a statute barred has been fully confirmed). If you do want to pay off the debt and possible have a proportion written off, try an IVA as this is one popular solution.
The unique thing with statute barred debt in the UK is that once a debt is disputed it is not up to you to provide proof - that responsibility falls onto your creditors. If you are uncertain as to whether your debt is statute barred or not, you can write to them asking them to prove otherwise. If you are doing this it is essential that you do not acknowledge the debt. Send the letter by recorded delivery so that there is a traceable account of you having sent it. Also, make a duplicate and keep a copy for yourself. Do not include your telephone number as you are just giving the creditors another way to contact you. Keep it simple and just conduct the exchange via post.
Below is a template of a letter that you could send to the creditors:
Dear Sir/Madam,
Account number/Reference number
I write to you regarding a letter concerning the above account that you sent me dated (dd/mm/yy). I enclose a copy of said letter for your convenience.
I must inform you that I do not acknowledge the debt. If you believe that a valid debt exists and that the Debtor resides at this address, please provide proof of your claims in writing.
The Financial Conduct Authority rules clearly state that until such time that you are able to provide this evidence you are barred from using any further collection methods.
Yours faithfully,
(your name)
If the creditors write to you and you are 100% certain that your debt is statute barred, you can write them a different letter to inform them of this. Again, make sure that it is sent via registered post and that you keep a copy for yourself. Use the template below as a guide to help you:
Dear Sir/Madam,
Account number/Reference number
I write to you regarding a letter concerning the above account that you sent me dated (dd/mm/yy). I enclose a copy of said letter for your convenience.
I must inform you that I do not acknowledge the debt. I also draw to your attention to the fact that under the Limitation Act 1980 Section 5, the debt is considered to be statute barred and is therefore unenforceable.
The Financial Conduct Authority rule 7.15.4 clearly states, ‘notwithstanding that a debt may be recoverable, a firm must not attempt to recover a statute barred debt in England, Wales or Northern Ireland if the lender or owner has not been in contact with the customer during the limitation period’.
The Financial Conduct Authority rule 7.15.8 clearly states, ‘a firm 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’.
Please do not contact me again unless you can provide me with clear written evidence, such as a credit agreement signed by myself, or written acknowledgement of the debt from myself from within the past six years.
I now consider this matter closed. However, if I should continue to receive demands for payment I shall have no choice but to report you to the Financial Services Ombudsman.
Yours faithfully,
(your name)
Let’s touch upon how long it is before a debt is deemed uncollectable in the UK. As we know, creditors have six years to claim unsecured debts such as credit cards, store cards, catalogues and personal loans. If you have not entered into any repayment schemes such as consolidating loans you could be eligible. For secured loans and mortgages this is extended to twelve years. However, many lenders follow the old Council for Mortgage Lenders Code which has been absorbed into its current day iteration of the Mortgage Conduct of Business Rules. This code states that:
‘Anyone whose property was taken into possession and sold more than six years ago, and who has not been contacted by their lender for recovery of their outstanding debt, will not now be asked to pay the shortfall.’
Another thing to consider is the ‘ticking clock’. Your six year window for statute barred debt in the UK starts from the day that you last made a payment or acknowledged that the debt existed. It doesn’t matter if your debt is sold to another company, the time frame remains the same. The ‘ticking clock’ does not reset, it simply carries on until the six years have elapsed.
The statute of limitations should not be abused to solve UK debt. It is highly unlikely that creditors will forget about money that is owed to them for so long. Your debt may be sold to another company, and while the six year clock may still be ticking, the chances are that if a company has bought your debt they are more inclined to look into it to satisfy their investment. For this very reason it is not uncommon for you to receive a letter chasing a debt after five years of silence. Check out the Pareto IVA FAQ to find out more about this solution if you want to deal with debts.
If the statute barred limitation expires and your creditors cannot legally chase you for the debts then you have to see it as a stroke of luck. You must not ignore debts in the hope that the statute of limitations law will save you. A financial responsibility is a legally binding contract and you must do your best to honour that contract.
