One of the first questions I ask a new client asking for help in chasing an unpaid account is, how old is the debt?
That’s because the law, specifically the Limitation Act 1980, sets time limits for starting court proceedings for recovery of the amount owed.
The account becomes ‘statute barred’ in legal jargon. That does not mean the debt is wiped out, but we’ll come back to that.
For unsecured debt, the law is reasonably straightforward. A creditor has six years – the ‘limitation period’ – to issue proceedings ‘from the date on which the cause of action accrued’. This is usually the termination of a credit agreement after a notice demanding payment has expired and the sum owed has not been paid.
Mortgages are more complicated. If a house buyer stops making payments, the lender has 12 years to seek repayment of the principal but only six years to claim any interest owing.
The limitation period for secured creditors is generally 12 years but depends on the type of security involved.
Now it starts to get more complicated. And that’s probably one reason why thousands of pages come up on any web search for Limitation Act. Many, including advice on web forums, need to be taken with a pinch of salt. There’s no substitute for expert advice.
The limitation period is extended if even a token payment is made or written acknowledgement of liability accepted by the debtor. Verbal acceptance is not enough and the written words must be clear in their meaning.
Jeremy Bouchier of Restons Solicitors put it this way in CCR Magazine last month: ‘A creditor has to show the correspondence contains an unequivocal acceptance of liability and does not amount to nothing more than a tentative enquiry, for example of an account balance.’
That’s why, on many sites advising people in debt, they are advised to use such phrases as ‘without prejudice’ or ‘no debt is acknowledged to you’ in reply to letters from creditors.
If there is a genuine dispute about the amount or other terms of the debt, then the offer of a compromise cannot be taken as an acknowledgement of liability. This is because the law protects the freedom of both parties to negotiate a settlement.
I mentioned earlier that a statute barred debt is not wiped out. This might appear to be academic when communicating with a debtor brings with it the risk of harassment proceedings.
Step Change, the country’s biggest debt charity, has a growing collection of debt myths and says one is the claim that: ‘Your debts are written off if you haven’t made a payment in six years.’
‘This refers to the Limitations Act; the debt can become statute barred after six years if the debtor (or anyone jointly named on the debt) hasn’t made a payment or admitted the debt and the creditor has not secured a county court judgment (CCJ) against the debtor.
‘Section 2.14 of The Office of Fair Trading Collection Guidance also states that it is unfair to pursue such claims where the creditor has made no contact during the relevant limitation period.
‘The Act isn’t there to encourage debt avoidance or non-payment, it’s there to protect people from being forced to pay debts that have ‘timed out’ through no fault of their own. The money owed itself is not written off; it’s still a debt and in reality it still exists, but with the Act in force the creditor can no longer enforce the debt through the courts. The creditor can continue to chase the debt if they wish.’
As a business with unpaid accounts approaching limitation, unless the clock can be reset with a written acknowledgement of liability, you have to decide whether to begin proceedings or write off the balance. At SJ Collections we can help you determine whether to pursue the debt.