What does statute-barred actually mean?
If you have a debt that’s statute-barred, then it means a law called the Limitation Act says that your creditor has run out of time to take certain types of legal action to try to collect the debt.
A statute-barred debt still exists, it just can’t be acted upon by the creditor; you can find out more about this here. However, many creditors and debt-collection agencies will still try to get the money from you and, if you can and you want to, you can pay the debt.
If you don’t pay the debt, it’ll still be on your credit reference file, which may well make it more difficult for you to get credit in the future.
What are the time limits for creditors to collect debts?
The UK’s Limitation Act 1980 lays down the rules for creditors; it tells them how long they have to take various forms of action against you to recover a debt. These time limits vary and some forms of debt never become statute-barred.
It’s important to know what the limitation periods for your forms of debt are because if your creditor has run out of time to take action against you, you don’t have to pay anything. On the other hand, you may owe a debt that can never become statute-barred, so you’ll have to pay.
What are the time limits?
For most forms of common contract debts, like credit cards, outstanding utility bills, some benefit overpayments, overdrafts and suchlike, the limitation period is six years after it starts. For Income Tax, VAT and Capital Gains Tax debts, there’s no limitation period so you can be chased indefinitely. For mortgage arrears, the period is 12 years for the capital (the amount borrowed) and six years for the interest on the amount.
When does the limitation period start?
The limitation period, whether it’s six or 12 years, starts from the so-called “cause of action”. In most cases this is the date your account defaulted, but different types of debt have different processes, which is why it’s important to get professional advice.
What if my debt is held jointly with another person?
If you have a joint debt – that is, you hold it with another person – then the creditor can chase one or both of you for the entire amount. Many people believe that joint debts are halved between the two debtors, but in actual fact you’re both liable for 100% of the amount.
If you believe your joint debt is nearing the point at which it’ll become statute-barred, then you need to check to see if the other person has made any payments after the limitation period started. If they did, then this re-starts the clock for both of you.
If you or the other person haven’t made any payments but one of you has acknowledged the debt in writing to the creditor, then the clock starts for the person who sent the signed letter but not for the other person.
Statute-barred debts aren’t as simple as just waiting for six years, so you should always talk to an adviser before deciding what to do.