Debt seems to follow people wherever they go. Though it may disappear for a while, it often resurfaces, and when it does, the consequences of not paying it may be more severe. Whenever possible, debt should be repaid as soon as it is incurred.
If the debt is allowed to linger, interest, late fees, and other charges may accumulate.
It is not unheard of to receive notification of debt that is ten years old or older. In the UK, special rules apply to out-of-date debt. The Limitations Act 1980 (applicable in England and Wales) stipulates that if a resident has not acknowledged or received any contact regarding a debt for a period of six years, the debt may have become unenforceable.
This debt might be classified as statute-barred and the debtor has certain rights concerning it.
Debt with a shelf life?
The Limitation Act 1980 stipulates the length of time that a creditor can legally pursue an individual for unpaid debt. This time limit is based on the type of debt and a six-year timeframe applies to unsecured debt. If the debtor makes a payment or provides written acknowledgement of the debt during this time, the timeframe begins again from the payment or acknowledgement date.
Creditors may contact debtors for an indefinite period of time regarding the collection of debts. However, if a creditor does not make contact for at least six years, the debtor could claim that the debt is statute-barred per the Limitations Act. If this claim is successful, the creditor may not be able to enforce payment through the legal system.
When they have not heard from a creditor for a long time, debtors may think the debt has been written off
Unfortunately for them, the debt might remain and the creditor may pursue payment. Creditors may pursue unsecured debt if the individual making it has acknowledged the debt in writing with a signature or an account or relevant County Court Judgment (CCJ) payment was made within the prior six years. This could include a payment made by a joint account holder.
However, if a debt is classified as statute-barred and the debtor indicates that repayment will not be made to the lender, the creditor has very limited options to pursue the debt. This action might be considered to go against the debt collection guidelines published by the Financial Conduct Authority and the Consumer Protection from Unfair Trading Regulations 2008.
If a CCJ was granted for debt after it became statute-barred, the debtor may ask the court to set this aside.
Once the six-year period has passed without acknowledgement or contact regarding the debt, legal action may be prohibited even if the debtor subsequently acknowledges or makes payment on the debt. Though creditors may make contact regarding statute barred debt, they cannot use a legal process to force the debtor to pay.
If a creditor does make contact after the six-year period, the debtor might prepare a written response that quotes the Limitation Act 1980 but does not acknowledge the debt.
A longer period might apply for certain types of debts to become statute-barred.
In Scotland, a similar limitation exists under the term “Prescription”. The relevant period is usually five years rather than six, though it may differ for certain types of debt.