If you’ve owed a debt for a long time (or if you’re a creditor) it’s important to understand there’s a time limit, beyond which a creditor can no longer take certain actions. However, there’s a lot of uncertainty about when a debt is or isn’t “statute-barred” — and what exactly that means.
What Is “Statute-Barred”?
A debt is statute-barred when no action has been taken to recover it for a specified time (usually six years) after the “cause of action”.
This doesn’t mean, however, that the debt no longer exists. There may be ways for the creditor to pursue the debt, and it can also show up on your credit reference file, making it harder to get credit. So it may still be in your interest to pay up if possible.
What Is the Cause of Action?
The cause of action is the point in the process from which the six years start running. This is usually not the point when the debt began, but rather the end of a specified sequence of actions that must be undertaken to establish that the debt is due.
In the case of an unsecured debt (e.g. a credit card or personal loan, also known as simple contract debts), the creditor needs to send a default notice if payments are missed. This is essential before they demand full repayment of the sum owed or terminate the agreement.
The default notice will allow the debtor fourteen days to pay the arrears. If payment is made within this time, the situation will return to its previous state. However, if no payment has been made at the end of the specified time, the creditor is permitted to take further action, such as seeking a County Court Judgement (CCJ).
When Will a Debt Be Statute-Barred?
If, after the specified period (e.g. six years) following the cause of action:
- the creditor hasn’t obtained a CCJ
- no payments have been made during the period
- you haven’t admitted the debt in writing during the period
the creditor will be unable to take further action. It’s advisable to write to them and point out the status of the debt under the Limitation Act and keep copies of any letters.
Don’t worry if you still receive certain “notices” from the creditor after this. They’re allowed to send these, but normally won’t be able to take action to recover the debt, as long as court action hasn’t already been initiated.
Feel free to get in touch with me for a chat if you’re unsure whether a debt you either owe or are owed may be statute-barred.