Old debt? You may be covered by statute of limitations

By Michael Lloyd

It's never wise to leave a debt unpaid -- not only will you rack up interest and late charges, but your credit record will reflect unpaid debts, which could prevent you from securing credit, a home or even a job in the future. However, the law protects you from being pursued for debts years after the debt went into arrears.

Under the terms of the Limitation Act 1980, normal unsecured consumer debt generally becomes unenforceable after it's been outstanding for six years. In Scotland, it's just five years. But there are a couple of conditions: the creditor must not have obtained a court judgement against you (there is no limitation period for a CCJ) and the clock starts ticking after the last time the debtor pays or acknowledges what he owes.

Once the statute of limitations has passed, a debt becomes statute-barred, meaning the lender will no longer be able to take you, the borrower, to court for non-payment.


"This does not mean the debt has been written off, but that it cannot be pursued through the courts," PayPlan Money Advice Consultant Jane
Clack explained in an emailed response to questions. "Once a creditor has been told it is statute-barred then they should not pursue it. They could
[sell it, and] chasing can continue via another party. The real problem is people cannot remember and six years is often indistinguishable from five, etc."

Declaring your debt statute-barred
You'll need to tread carefully if you suspect a debt you're being chased for
is statute-barred. You must be sure not to acknowledge that you owe the amount outstanding before the six years is up, because if you do, the
clock will restart. In some instances, simply contacting a creditor about a debt can be viewed as acknowledgement. For this reason it's crucial to keep track of the last date you acknowledged the debt or made a payment, Jane Tully, head of insight and engagement at the Money Advice Trust, advised in her response to emailed questions.

If you're confident that you last acknowledged or made a payment toward the debt more than six years ago, it will be up to the creditor to prove the debt is enforceable.

Once you've established that a debt is unenforceable, write to the creditor that's chasing you to say you do not accept liability for the amount outstanding and will not be making any payments. The Financial Conduct Authority says creditors may not pursue debt that has become unenforceable if a borrower refuses to accept liability.

Effect on your credit
Credit agreements are removed from your credit record six years from the date they enter default, which is when a creditor cancels a credit agreement due to non-payment. Assuming default came not long after you last made a payment, this should just about coincide with the date your debt becomes statute-barred.

Of course, you can repay statute-barred debt if you want to. In fact, if you do, you'll probably be able to negotiate an attractive settlement. Arranging to pay will prevent the creditor from selling your debt. Some debt collection agencies specialise in buying aged debt for pennies on the pound. If they can get lucky with just a small percentage of the accounts they buy, there's big money to be made.

"Collections agencies may pursue debts even if they are not sure whether the debt is statute-barred," Tully said. "If a consumer knows that their debt is statute-barred but is still being pursued, we would advise that they make the collections agency or creditor aware of this at the earliest opportunity. No further action can be taken against debts that fall into this category. For this reason, a statute-barred debt would not be included in a debt management plan, but this would not prevent a consumer from voluntarily choosing to repay the debt if they so wish."

Joint debt and the statute of limitations
Issues surrounding statute-barred debt will be straightforward if you're dealing with an account that's just in your name, but things can get a little more complicated when it comes to joint credit agreements that might be approaching statute-barred status.

"With joint debts, other things come into play," Clack explained. "If one party has made a payment, then the six-year period starts again for both [parties.] If one has acknowledged in writing, then the time period of six years starts again only for that person."

If you're being pursued for a debt that you've informed a creditor or collections agency is statute barred, make a complaint to the Financial Ombudsman.

See related: Avoid late payments -- factor in processing time, Prioritising debt: Which bills are essential?

Updated: 18 November 2016