Statute barred debt – common questions

If you have an old debt, you may wonder if you still have to pay it? Can your creditors really take you to court after this long?

English law says a creditor only has a limited amount of time – typically six years – to take you to court. The term for a debt that is so old that it can’t be enforced in court is “statute barred”.

If you are making payments the debt will never become statute barred no matter how old it gets.

New rules for some debts – January 2019

In January 2019 there was a decision in the Court of Appeal (Doyle v PRA) that has changed the point at which the six-year period starts for some debts including credit cards and loans.

What is “statute barred” – an overview

Creditors have to take legal action about debts within certain times which are set out in the Limitations Act 1980. For most sorts of debts and bills in England and Wales this time is six years.

If the creditor doesn’t start court action within this time, the debt is not enforceable because it is “statute-barred”. When a debt is statute-barred it still exists legally, but because you cannot be taken to court for it, you do not have to make any payments to it.

This six-year period begins when the creditor has a cause of action – this is the point at which the creditor could go to court for the debt.

If you are making the normal monthly payments to a debt, you can’t be taken to court for it. It is only when you have missed payments and the creditor can go to court that the 6-year period starts.

Think of a timer that runs for 6 years – which can be reset

A good way to think of statute barring is that there is a 6 year timer. This is set running when the creditor has a cause of action. The sand takes 6 years to drain slowly through… at the end, your debt is statute barred.

But if you make a payment to the debt or acknowledge it in writing during the six years, the clock is reset back to start at 6 years again. So if you are making monthly payments, even tiny ones, a debt will never become statute barred as the clock resets back to 6 years every month.

What is a cause of action?

I try to avoid using legal jargon, but this point is so important that I have to talk about it.

Someone can’t sue you for a debt unless they have a good reason to – this is their cause of action. What that good reason is depends on the type of debt, how it is regulated and, sometimes, what the contract for the debt says.

This has always be complicated for some debts such as overdrafts which don’t have regular payments. You may have stopped using your overdraft 8 years ago, but your bank may not have realised this for a long while – so when would they have the right to sue you?

The January 2019 court judgment decided that a creditor’s cause of action does not start for some credit debts (including some loans and credit cards) until the creditor has sent you a Default Notice. The problem here is that you may not remember when you got that or if one was ever sent. Also the creditor can just delay sending you this so your debt may never become statute barred.

How can I tell if my debt is statute-barred?

Unsecured debts, including most loans, credit cards, catalogues and overdrafts will normally be statute-barred in England and Wales if you can say YES to all the following four points:

1. it had been more than six years since you last made a payment; and

2. the creditor has a cause of action more than six years ago; and 

3. you haven’t acknowledged the debt in writing during this time; and

4. the creditor hasn’t already gone to court for a CCJ.

With a joint loan, it matters if either of you makes a payment. If you have split-up, you may think a debt is statute-barred but it isn’t because your ex has made a payment to it in the last 6 years.

Acknowledging the debt has to be in writing. If you haven’t done this, it doesn’t matter if the creditor has written to you, or you have discussed the debt on the phone – this won’t stop the debt being statute barred. If you have reclaimed PPI, this is likely to have acknowledged the debt.

The cause of action is the most difficult point to determine here. See this National Debtline factsheet which has a section on When Does the Limitation Period Start Running? 

Sometimes the exact date a debt becomes statute barred matters:

• if you write saying that a debt is statute-barred and you are wrong because the debt isn’t, then your letter is likely to have “reset the clock” by acknowledging the debt;

• if you have received a court form about a debt, you need to know whether you can defend the case on the grounds the debt is statute barred.

Questions about different sorts of debt

Statute barring for secured debt – mortgage shortfalls

If your debt is still secured – you are still living in the house there is a mortgage or a secured loan on – then statute barring isn’t relevant. What matters is if you get too far into arrears the lender can go to court to repossess your house.

But what about when the house has been sold so the security no longer exists but you still owe money on the debts?

For a debt resulting from a mortgage shortfall, the time allowed in the Limitations Act is twelve years. But many lenders follow the old Council for Mortgage Lenders code, now part of the MCOB Rules (Mortgage Conduct of Business), that says:

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 the outstanding debt, will not now be asked to pay the shortfall.

Do tax debts or benefit overpayments become statute barred?

Tax debts such as Income tax and VAT do not become statute barred.  If you are wondering if your debt is a “tax debt”, HMRC has a list of “not tax debts”, which do become statute barred.

The situation regarding benefit overpayments is more complicated –  although they can become statute-barred, there are other ways the debt could still be recovered.  You should take advice about these sorts of debts – contact National Debtline or your local Citizens Advice are very good with benefit issues.

What about old council tax arrears?

A council should not go to court and ask for a liability order for council tax arrears more than six years after the council tax became due. But if the council already has a Liability Order, this will never become time-barred.

If you get a letter out of the blue about a Liability Order for council tax arrears from ten years ago, this may feel very unreasonable. One of the main reasons time limits exist is that people don’t keep paperwork forever, so you may have no way of proving that you paid the debt at the time. This is one of the rare occasions when it may be worth asking the creditor to Write-off the debt.  It may also be worth getting a local councillor involved for council tax arrears.

What about utilities?

Gas, electricity and water bills become statute barred 6 years after the date on the bill. There are also rules regulating when a supplier can “back bill” – send a new bill for charges more than 12 months old. If you think you have a problem with back billing, go to your local Citizens Advice and ask for their help.

Getting letters and court forms about a debt you think is statute barred

Can I ignore a letter about a statute barred debt?

Are you 100% sure that it is statute barred? If you aren’t certain talk to National Debtline.

If you are do not recognise the debt you should probably write a “Prove It” letter to your creditor. This is worded so that it doesn’t acknowledge the debt.

If you do recognise the debt but you are certain it is statute-barred, you could ignore a letter. But it might be less stressful to reply pointing out that it is statute-barred rather than get more letters and possibly court forms.  National Debtline has a template letter you can use here.

Can I ignore a Letter Before Action/Claim about a statute barred debt?

This is a bad idea. It is much easier to challenge a creditor by saying the debt is statute barred using the Reply Form than it is to defend a court case.

I have been sent a Claim Form for a statute barred debt – what should I do?

Do NOT ignore the Claim Form. If you do, a judgment will be made against you in default because you haven’t replied, even if your debt is statute barred.

So if the creditor takes you to court, you must defend the claim on the grounds that it is statute-barred. And also look at whether you have any other defences eg can the creditor produce the CCA agreement.

If you are unsure what to write on the defence form, phone National Debtline and talk to them.

Other FAQs about statute barred debt

I live in Scotland

This article isn’t relevant if you live in Scotland where the laws and time limits are very different. I suggest you phone National Debtline who have Scottish experts.

My debt is statute barred, do I still owe the money?

Yes.  Your debt still exists, it hasn’t been written off, it can still get sold on and you may still receive letters about it.

The Financial Conduct Authority’s rules about statute-barred consumer credit debt (loans, credit cards etc) are here. They say that if you state you will not pay a statute barred debt, the creditor cannot continue to ask you to pay it.

If you want to get rid of the debt completely and you are absolutely sure a debt is statute-barred, you could consider making a very low Full and Final Settlement offer, perhaps under 10%. Your letter should point out that the debt is statute barred and hence unenforceable.

A debt has dropped off my credit record – is it statute barred?

Possibly not! Obviously your debt is old but it may not be statute barred.

The six-year period for the Statute of Limitations is NOT the same as the six-year period that a debt stays on your credit file after a default. If a debt isn’t showing on your credit file it may be statute barred but it may not be.

A debt will stop showing on your credit record six years after any default was recorded. But if you have made some payments to it in the last 6 years, perhaps just a token £1 a month, then it isn’t going to be statute barred.

My debt has been sold, does this effect becoming statute barred?

No, it doesn’t matter if your debt is sold. The six-year period still runs from the date of your last payment or written acknowledgement of the debt.

The sale doesn’t “reset the clock”. If it was already statute-barred at the time it was sold, it remains statute barred.

When does a CCJ become statute barred?

It never does.  But if the creditor hasn’t taken any enforcement action in six years, they will need to apply to the court for permission if they want to enforce the debt by using bailiffs. This is unusual but if it happens to you, contact National Debtline.

My debt is statute-barred – if I reclaim PPI  will this re-open the debt?

Once a debt is statute barred this is permanent, it can never become “unbarred” so applying for a PPI reclaim won’t change this. So it’s safe to reclaim PPI on a statute barred debt.

But if the reclaim is successful, the lender will sometimes not send you the money but set it off against the remaining debt – even though it is statute barred the debt still exists. In this situation don’t use a claims company, or you could end up owing them money.

STATUTE BARRED TEMPLATE LETTER

Send this when a debt has not bee paid or acknowledged in the last 6 years.

[Name-Name] [Surname]

[INSERT YOUR ADDRESS]

[Date In Full]

CEO Name

Debt Collection Agency Name 

Address line 1

Address2

County

P05T C0D3

NOTICE OF STATUTE BARRED CLAIM

Dear Sir/Madam,

Re: Your Reference: [INSERT REFERENCE NUMBER]

I am writing to you in connection with the claim received from you dated [Date In Full] (received [Date In Full]), 

I hereby give you formal Notice that the alleged debt regarding the above mentioned account is now Statute Barred in accordance with Section 5 of the Limitation Act 1980.

I remind you the Financial Conduct Authority (FCA) rule 7.15.8 states that:

“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.”

I require you to formally acknowledge that this matter is now settled and that no further action will be taken, or alternatively you must provide immediately evidence that the Limitation Act 1980 does not apply. 

Furthermore, should your correspondence not sufficiently clarify that the alleged debt will no longer be pursued by you or any agency on your behalf then I will report you to the Financial Ombudsman.

I wish to make it perfectly clear that I all communications should be in writing and I hereby give Notice as of [Date In Full], under the Protection from Harassment Act 1977 to Cease and Desist any intended door-step visits. Any further unauthorised communication (text, calls or door-step visits) from your company or anyone on your behalf will be deemed to be harassment. 

The Financial Conduct Authority (FCA) has produced a set of Debt Collection and Debt Management Guidelines which state that:

"...continuing to press for payment after a debtor has stated that they will not be paying a debt because it is statute barred could amount to harassment contrary to section 40 (1) of the Administration of Justice Act 1970".

Failure to comply with this Notice will result in you being reported to both Trading Standards and The Financial Conduct Authority. 

Take further notice that continued telephone calls after the receipt of a request not to call may constitute a criminal offence under Section 127 of the Communications Act 2003.

I require you to respond within 10 working days to reply in full and with a definitive response. All the information you require is already in your possession. All other communication will be deemed as harassment and a complaint will be made to the Financial Ombudsman Service without further warning.

I await to hear from you.

Kind Regards,

[YOUR NAME] 

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