If a creditor takes too long to take action to recover a debt it becomes ‘statute barred’, meaning it can no longer be recovered through court action. In practical terms, this effectively means the debt is written off, even though technically it still exists.
How long this takes depends on the type of debt. In Scotland, debts become ‘prescribed’ after a period of time, meaning they no longer exist. It isn’t considered fair for a creditor to wait many years to take action, when important paperwork could have been lost or a very old debt forgotten about.
When does a debt become statute barred or prescribed?
In England, Wales and Northern Ireland:
If a creditor waits too long to take court action, the debt will become ‘unenforceable’ or statute barred. This means the debt still exists but the law (statute) can be used to prevent (bar) the creditor from getting a court judgment or order to recover it. However, they may still be able to take other action depending on the type of debt.
If the creditor waits too long, the debt will become prescribed. Once a debt is prescribed, the law says it no longer exists so there’s nothing more the creditor can do to collect it.
How long before a debt is written off?
The laws set out the period in which a creditor has to begin court action. The length of time varies depending on the type of debt and is known as the ‘limitation period’.
In England, Wales and Northern Ireland:
For most types of debt in England, Wales and Northern Ireland, the limitation period is six years. This applies to most common debt types such as credit or store cards, personal loans, gas or electric arrears, council tax arrears, benefit overpayments, payday loans, rent arrears, catalogues or overdrafts.
There are some exceptions though:
· Mortgage shortfalls have a longer limitation period of twelve years for the money you borrowed (the ‘capital’), while the interest charged on this has a limitation period of six years
· Personal injury claims have a shorter limitation period of three years
· Income tax, VAT and capital gains tax debts to HM Revenue & Customs don’t have a limitation period. This means HMRC can take you to court for these debts even if they date back many years
· If the creditor has already started action to obtain a court judgment or order before the limitation period passed the debt can never become statute-barred.
For most types of debt in Scotland, the prescription period is five years. This applies to most common debt types such as credit or store cards, personal loans, gas or electric arrears, housing benefit overpayments, payday loans, catalogues or overdrafts.
There are some exceptions though:
· Mortgage shortfalls have a longer prescription period of 20 years for money you borrowed (the ‘capital’), while the interest charged on this has a prescription period of five years
· Council tax and some DWP benefit overpayment have a longer prescription period of
· Income tax, VAT and capital gains tax debts to HM Revenue & Customs don’t have a prescription period. This means HMRC can take you to court for these debts even if they date back many years
· If the creditor has already started action to obtain a decree before the prescription period passed, the debt can’t become prescribed.
How do I know if my debt is statute barred or prescribed?
This depends on how much time has passed since the start date of the limitation period. That date is which of the following happened most recently:
· The last time you wrote to the creditor acknowledging that you owed the debt
· The last time you made a payment to the debt
· The earliest date the creditor could have started court action
The last time you wrote to the creditor acknowledging that you owed the debt
This needs to be a signed letter from you to the creditor. In some cases an email can also count as written acknowledgement. If you have a debt in joint names, written acknowledgement only counts for the person who signed the letter.
A letter from a third party sent with your permission by someone who is acting on your behalf also counts as written acknowledgement. This includes letters sent by advice agencies or debt management companies.
The following do not count as written acknowledgement of a debt:
· A letter from you to the creditor clearly stating you don’t owe the debt
· A letter from the creditor to you
· Speaking to a creditor over the phone
The last time you made a payment to the debt
If the debt is in joint names, a payment by either person will count as the start of the limitation period for both people named on the account. A payment to the creditor by a debt management company or advice agency acting on your behalf will also count.
The earliest date the creditor could have started court action to recover the debt
This will vary depending on the type of debt. For most common consumer debts such as personal loans, credit or store cards, catalogues or payday loans, this will be the date your account defaults. This is normally 14 days after you are sent a default notice warning you to bring your account up to date. It was previously understood that the limitation was based on the earliest date the account could have defaulted, regardless of when the default notice was issued. This is no longer the case, following a Court of Appeal ruling which confirmed a debt becomes statute-barred six years after the default notice expires. This applies only to England and Wales, but there is a similar case law in Scotland.
For example, if you live in England and the account was defaulted on 1 January 2015 and your debt has a six year limitation period, it’ll become statute-barred from 1 January 2021.
For other debt types, the earliest date court action could have been started can be harder to work out, so contact us if you have need help with this. To work out when a debt becomes statute-barred or prescribed, take whichever of these events happened most recently and add the limitation period. For example, if you live in Wales and the most recent of these events was a payment you made on 1 January 2015 and your debt has a six-year limitation period, it’ll become statute-barred from 1 January 2021.
If a creditor has already started court action before the end of the limitation period, this doesn’t apply – the debt will never become statute-barred or prescribed.
What can a creditor do after the limitation period has passed?
Once a debt has become statute-barred or prescribed it can’t be restarted even if you make a payment to it.
The Financial Conduct Authority (FCA) say that it’s not fair for a creditor to keep asking you to pay a statute-barred or prescribed debt if you’ve told them you don’t intend to pay it. This means for debts which are regulated by the FCA, once you’ve shown the limitation period has passed and told them you won’t be paying the debt, they should stop contacting you. This applies to many common types of consumer debt such as credit or store cards, payday loans, personal loans, overdrafts and catalogues.
Other possible actions a creditor can vary depending where you live in the UK:
England, Wales or Northern Ireland
Once a debt is statute-barred, the creditor will no longer be able to get a CCJ or money judgment, and they won’t be able to make you bankrupt. However, as the debt still legally exists the creditor could contact you to ask for payment, if the creditor is not regulated by the FCA. Some creditors have the power to take further action to collect debts without needing to go to court, so they can still take money from you even after the debt is statute- barred. This mainly applies to DWP or local authority benefit overpayments or HMRC tax credit overpayments, because these creditors can deduct money directly from your wages or benefits without going to court. The amount you have to pay back may be taken directly from your wages through a direct earnings attachment (DEA).
The creditor can’t do anything to collect a prescribed debt because the law says the debt no longer exists. If you’ve made any payments to a prescribed debt, you can ask the creditor to refund them. In some cases, a debt can still appear on your credit file even after it’s statute barred. This means it will be visible to other lenders which could make it harder to get future credit.
What should I do if my debt is statute-barred or prescribed?
What to do next depends on how sure you are that the limitation period has definitely passed.
If you’re certain the limitation period has passed
If you haven’t heard from the creditor then you don’t need to do anything.
If the creditor is contacting you, and the debt is definitely statute-barred or prescribed, you should write to them to explain that you won’t be making any further payment. Ask them to stop contacting you about the debt, or, if they believe the debt is still owed, to send you evidence.
If you’re not certain the limitation has passed
Sometimes it’s not clear when the last payment or written acknowledgement to a debt happened. It might be hard to remember exact dates five or six years ago. You can check payments you’ve made to a debt by getting a copy of your credit file or looking through old bank statements. Alternatively think if there are any memorable life events that tie into the last payment or contact you had with the creditor. For example, did you stop paying a debt after you moved house or separated from a partner?
If you still can’t be sure, you have two options:
1. Contact the creditor and tell them you believe the debt is statute-barred or prescribed, asking them to send proof if they believe this is not the case. If the creditor replies with proof of payment or written acknowledgement of the debt, you’ll need to start paying it.
2. Don’t contact the creditor and hope that the limitation period ends before they start court action. We don’t recommend you take this approach. If a creditor hasn’t had any contact or payment from you for a long time they may start court action just before the limitation period ends. Ignoring a debt greatly increases the chances you’ll end up with a CCJ, decree or money judgment, which you may have been able to avoid by contacting the creditor sooner. If the limitation period has passed but you still feel that you want to pay the debt, you can. But if you have other debts to pay which are not statute-barred or prescribed, you should think carefully about whether your money could be better used to pay these instead.
Can a creditor start court action after the limitation period has passed?
If a creditor starts court action after the limitation period has passed, the fact that the debt has become statute-barred or prescribed gives you a defence. If you show the court that the limitation period has passed, the court should cancel the creditor’s case.
If you get court paperwork for a statute-barred or prescribed debt it’s very important that you complete the forms and return them on time. If you don’t, the court won’t know about the limitation period ending and you’ll get a court order.
Depending where you live and the type of debt, this could be a CCJ, liability order, decree or money judgment. You may be able to get this cancelled later, but this can be difficult and there may extra court fees to pay.
Filling in court forms for a statute barred or prescribed debt can be more complicated than normal, and there’s a possibility you may need to attend a hearing if the court
needs more information.
Once you’ve returned the forms to the court explaining that the limitation period has passed, the onus is on the creditor to provide evidence that it hasn’t. If the creditor can provide evidence that the limitation period hasn’t passed you’ll get a court judgment as normal and you’ll have to pay the debt. This evidence could include proof of payments you’ve made or copies of letters you’ve sent. If the creditor can’t prove that the limitation period hasn’t passed, the court should dismiss their claim. You won’t get a court order for payment