Notice of defaults: everything you need to know
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You may have heard that there is a certain period of time after which your lenders cannot make you repay a debt. This refers to something called ‘statute barred debt’ (also sometimes known as ‘time barred debt’ or ‘time limited debt’).
You may have heard that there is a certain period of time after which your lenders cannot make you repay a debt. This refers to something called ‘statute barred debt’ (also sometimes known as ‘time barred debt’ or ‘time limited debt’). In this post we’re going to cover everything you need to know about statute barred debt - including when and how to get expert debt advice if you think one or more of your debts might be statute barred.
What is ‘statute barred’ debt?
If you don’t repay a debt as agreed, there are a number of options available for the lender or creditor to try to get their money back. These include taking court action.
The Limitation Act 1980 sets out the time limits your lender has to enforce most kinds of debt through the courts. In most cases, this is a six-year time limit, but some debts are treated differently. For example, the time limit is twelve years for mortgage shortfall debts.
If they don’t issue you with court papers within the time limit - and if certain other criteria are met - the creditor will lose their right to enforce this debt through the courts. This is what is meant by a ‘statute barred’ debt.
This absolutely does not mean that you can or should stop paying any of your debts that are over six years old! Statute barred debt can be complicated - let’s have a look at how it works in a bit more detail.
When does the time limit start?
The clock starts when the lender or creditor first has the option of taking court action to recover the debt. This point is called the creditor’s ‘cause of action’.
This means the time limit doesn’t start until after you’ve begun to miss payments. And following the Court of Appeals decision referred to above, it doesn’t start, for some credit debts, until the lender has sent you a Default Notice.
If you pay anything at all towards the debt before the time limit is up, it will reset and start again. This will also happen if you do anything to acknowledge the debt - see ‘What does acknowledging the debt mean?’, below.
I think I have some statute barred debt - do I still owe the money?
Statute barred does not mean the debt no longer exists. You do still owe the debt, and the lender may continue to pursue you for it, or sell it on. Being statute barred just means the creditor no longer has the option of taking court action to recover the debt.
How does statute barred debt affect my credit file?
Statute barred debt may still appear on your credit file, affecting your credit score and your ability to borrow in the future. However, if a debt no longer appears on your credit file, this doesn’t necessarily mean it is statute barred.
Changes to the statute barred rules
Following a court decision earlier this year, the time limit changed slightly in relation to certain consumer credit debts. So be careful if you’re looking into statute barred debt online, as articles and comments written before this date may no longer be accurate.
In Scotland there is no such thing as statute barred - instead, debts may be ‘extinguished’ after a certain period of time - the laws and time limits involved are very different from those in the rest of the UK. If you’re in Scotland, take a look at our information about Scottish debt solutions and get in touch for expert debt advice.
How do I know if a debt is statute barred?
The time limits are different depending on the type of debt that you have.
The time limit of six years applies to unsecured debts, like loans and credit cards. The same limit applies to National Insurance debts.
Other rules and time limits may apply to some specific debts, including benefit overpayments, child maintenance, council tax arrears and utility bill arrears, mortgage shortfalls and student loans. Get in touch for advice on how to deal with any of these debts, particularly if you think they might be at least six years old.
Have you paid or ‘acknowledged’ the debt?
The time limitation restarts if you make a payment on the debt, or otherwise ‘acknowledge’ that you owe it.
For jointly held debts, the time limit will reset when either party pays the creditor. This can be a problem for debts you think are statute barred, if you hold them jointly with an ex-partner - any payments your ex-partner has made during the last six years will have reset the time limit.
What does acknowledging the debt mean?
You can be seen as having acknowledged the debt if you refer to it at all in writing - or if someone representing you does. (Talking to the creditor by phone is not usually seen as acknowledgment of the debt.) This means you have to be careful in how you deal with creditors if you think a debt might be close to becoming statute barred - see ‘What do I do if I am contacted about statute barred debt?’, below.
Reclaiming PPI is also usually treated as having acknowledged the debt. If you made a PPI claim relating to a debt that was already statute barred, this won’t have reset the time limit - however, the lender may use the money they owe you for a successful claim to set off against your remaining debt to them, instead of paying it to you.
What action has the creditor taken?
Did they send you a default notice? For some credit debts, the time limit does not begin until you have been sent a Default Notice. If you’re not sure if you ever received one, speak to an expert debt adviser. Don’t write to the creditor about this as this risks being seen to acknowledge the debt!
Have they sold the debt on?
It’s not unusual for a lender to sell your debt to a third-party debt collection agency. This doesn’t change the way statute barring affects your debts. The time limit still runs from whenever you last made a payment or acknowledged the debt.
Have they taken court action?
Once a creditor has obtained a court order against you - like a CCJ, or a liability order if you owe council tax arrears - then statute barring will never apply to this debt. However, the creditor may have a limited time in which they’re allowed to send bailiffs to try to recover the debt.
Not sure whether court action has taken place? Check your credit report.
What do I do if I am contacted about statute barred debt?
First of all, read the criteria above to work out if statute barring applies to this debt. If you’re not sure, for example, whether a Default Notice was sent or when you made your last payment, you can contact the creditor - but it’s usually best to do this by phone, not by letter, SMS, email or webchat. That’s because you could inadvertently ‘acknowledge’ the debt by referring to it in writing.
For jointly held debts, check whether the other person responsible for the debt has made any payments or otherwise done anything to acknowledge the debt.
Don’t ignore any letters relating to court action
If the contact you’ve received relates to court action in any way - if you’ve received court papers, or anything that says ‘Letter Before Action’ - then don’t ignore it. Even for statute barred debts, a court judgement can still be made against you if you do not respond.
For advice on defending a court claim - or if you’ve already received a court order relating to the debt - get specialist debt advice.
Decide what you want to do next
Dealing with statute barred debt is complicated. And - particularly if you’re dealing with a number of debts - you may find it difficult to stay on top of which ones are statute barred and which are not. Our expert advisers could help you sort through the confusion. We may be able to recommend a debt solution to help you clear all your debts - or even just talk you through the best way to deal directly with your remaining creditors.
No matter how many debts you’re dealing with and how old they are, you’re not alone - our advisers have heard it all. Contact us today for expert debt advice.
by Christine WalshBack to blog home