When exploring debt collection and money rules in the UK, the Limitations Act 1980 stands out as a fair guideline. It aims to keep things fair between people who lend money and those who borrow it.
This law sets a clear limit on how long lenders can chase you for old debts through the courts. But what does this mean for real life, and why is it important for both the person lending money and the one borrowing it? Let’s find out.
Table of Contents
MORE
LESS
The Basics of The Limitations Act
The Limitations Act 1980 applies to a debt when there has been no contact between a debtor and creditor during a particular time period, and it only applies to residents of England and Wales.
According to the Limitations Act, a creditor has a specific time period in order to collect a debt from a debtor. The time period usually depends on the type of debt, and it can even be extended at the court’s discretion. The time limit starts from the date you last admitted to owing the debt or making a payment to the creditor.
In a situation where the creditor fails to stay in contact with the debtor for six years or more, then it is possible for the debt to be claimed as “statute barred” under the conditions of the Limitations Act 1980.
Understanding Unsecured Debt and The Limitations Act
Unsecured debt is any type of debt that is not secured with collateral. The absence of collateral makes these debts inherently riskier for lenders. This risk is reflected in higher interest rates compared to secured loans. These debts include:
- Credit card debt
- Personal loans
- Medical bills
Keep in mind that when it comes to unsecured debt, debtors can still pursue it if:
- They have already obtained a County Court Judgement (CCJ) against you.
- You have made a payment for the debt within the last six years
- You have not written to the creditor admitting that you owe the debt in the last six years.
However, if a creditor continues to chase you for debt even after the debt is statute barred and you have informed them that you no longer intend to pay the debt, you may be able to claim harassment according to section 40 (1) of the Administration of Justice Act 1970.
Unique Debt Types and Limitation Periods
Not all debts wear the same face when it comes to the Limitations Act 1980. Council tax debts and mortgage shortfalls, for example, play by their own rules.
Priority debts stand apart in the world of financial obligations. Taxes and council tax, crucial for the functioning of public services, are treated with utmost seriousness. Unlike other debts, these do not fade away with time under the Limitations Act 1980. The law is clear: such debts remain a perpetual responsibility, demanding attention and prompt resolution.
Ignoring priority debts is not an option. The consequences are severe, with potential impacts ranging from wage deductions to the dramatic seizing of property or even imprisonment. It underscores the importance of addressing these debts head-on without delay.
However, when it comes to Council Tax, if it was due over six years ago, then the council will be unable to request the court for a Liability Order (this is where the council gets the right to deduct the council tax debt from a person’s wages or benefits).
However, the chances of this happening are very low because the council is unlikely to let this happen and will make sure that they obtain a Liability Order before the 6-year period comes to an end.
On the other hand, if a mortgage lender is chasing you for a mortgage shortfall, which was the result of repossession, the time limit is much higher. Mortgage lenders get 12 years to collect the debt before it becomes statute barred.
Suppose you’re struggling with debt and unable to pay it off; worry not! Reach out to our Money Advisor team for guidance and solutions:
Are you struggling with unaffordable debt?
- Affordable repayments
- Reduce Pressure from people you owe
- One simple monthly payment
Common Misconceptions About Statute Barred Debt
Many people assume that once your debt is statute barred, the debt is wiped off and it no longer exists, but that’s not quite true. The law says that after a certain time, creditors can’t take you to court to make you pay the debt. This is what a “statute-barred” debt means. But even though they can’t sue you, you still technically owe the money.
There’s a difference between a debt being “statute-barred” and “written off.” “Written off” means the creditor decides to forget about the debt altogether. This might happen if they don’t think they can collect the money, or it wouldn’t be worth the effort. But a statute-barred debt just means they can’t use the courts to force you to pay.
Credit Impact of Statute Barred Debts
Even though old debts can’t be enforced by law, they can still hurt your credit score for a while. But the bad mark fades with time, especially if you take steps to improve your finances.
Here’s how to improve your credit score:
- Build a good credit score: Pay your bills on time and use credit cards responsibly. There are even special tools to help build credit.
- Be smart with credit: Don’t borrow more than you can afford to repay.
The Financial Conduct Authority (FCA) Guidelines and Statute Barred Debt
The FCA steps in as the regulatory watchdog, ensuring that the chase for statute-barred debts doesn’t turn into a wild goose chase filled with misleading tactics.
The FCA ensures that there is fairness and transparency when creditors deal with debtors. Creditors are barred from:
- Misleading debtors about their legal obligations
- Implying legal actions that can’t actually be taken
This approach is designed to maintain integrity in debt recovery practices, even when the debt has aged beyond the limitation period.
But what happens when lines are crossed? The Financial Ombudsman Service helps individuals facing unfair recovery attempts, offering a path to resolution that demands:
- Exhaustion of the lender’s complaint procedure first
- A clear, fair process for raising concerns
How to Prevent Debt From Becoming Statute Barred
Here’s a breakdown of how to prevent debt from becoming statute-barred:
- Keep good records of everything related to the debt, like loan agreements and payment history. This will be crucial if you need to take legal action to collect the debt.
- Don’t wait until someone is way behind on payments before reaching out. Friendly reminders and early communication can help keep the borrower on track.
- Consider offering repayment plans or hardship programs to help borrowers catch up. This can be more effective than letting the debt become unmanageable and risk it becoming statute-barred.
- The sooner you address debt issues, the better. Ignoring them won’t make them go away and could lead to bigger problems down the line.
- Even small, regular payments can go a long way. Try to set up a budget that allows you to make at least the minimum payment on all your debts each month.
- Talk to a financial advisor or credit counsellor. They can help you understand your options and develop a plan to manage your debt. There are also many free resources available online and through non-profit organisations. If you need advice or guidance, feel free to fill out our online form and our Money Advisor team will guide you on the best course of action.
Conclusion
Overall, the Limitations Act acts like a rulebook for debt collection. It sets deadlines for creditors to collect their money before they can’t take you to court. This helps protect both lenders and borrowers. The key thing to remember is that there’s a time limit on collecting debts.
It’s also important to know what kind of debts this law doesn’t apply to so you’re clear on your financial obligations. By understanding this law, you can make better decisions about your money, whether you’re dealing with everyday debts or older ones that might be affected by this Act. It basically gives everyone involved a sense of security and control over their finances.
Key Points
- Some debts, notably those owed to HM Revenue & Customs (HMRC) and council tax, are not subject to the Limitations Act 1980. This means they can be pursued by creditors at any time, without restriction by the Act’s time limits.
- Before acknowledging a debt, it’s crucial to understand the consequences, as this can reset the limitation period. Seeking advice from a debt advisor is recommended.
- Engage with professional advice before making any acknowledgment of a debt to prevent unintentionally restarting the limitation period.
- If approached about a debt that might be statute barred, carefully verify the last payment or acknowledgment date to determine its current status.
- The Act sets time limits within which creditors can legally enforce the recovery of debts. Understanding these limits is essential for both creditors and debtors to manage financial obligations responsibly.
- The Act aims to balance the need for debt recovery with protections for debtors, highlighting the importance of timely and informed action in debt management.
- Creditors should maintain accurate records and remain proactive in their communication to prevent debts from becoming statute barred unintentionally.
- Debtors should seek advice and explore debt management options early to mitigate the complications associated with statute-barred debts and protect their financial well-being.
- Creditors may still pursue legal action under certain conditions, such as if the debtor acknowledges the debt or makes a partial payment, which can reset the limitation period.
- Debtors can defend against a claim on a statute-barred debt by proving that the debt is outside the limitation period set by the Limitations Act 1980.
FAQs
The Limitations Act 1980 is a UK law that sets time limits within which creditors must take action to recover debts. After this period, debts become ‘statute barred’, meaning they can no longer be legally recovered through court action.
Certain debts, such as those owed to HM Revenue & Customs (HMRC) for taxes and council tax, are not subject to the limitations periods outlined in the Act. These can be pursued by creditors at any time without limitation.
A ‘statute barred’ debt is one that has passed the time limit for legal recovery set by the Limitations Act 1980. While the debt still exists, creditors cannot enforce it through court action.
Acknowledging a debt, either through written communication or making a payment, can reset the limitation period, making it possible for creditors to take legal action for recovery.
If contacted about an old debt:
- Verify the details of the debt, including the date of the last payment or acknowledgment.
- Do not acknowledge the debt until you have confirmed its status and whether it might be statute barred.
Creditors should:
- Maintain accurate records of all communications and payments.
- Stay proactive in their communication with debtors to recover debts before they become statute barred.
Individuals should:
- Seek professional advice before acknowledging any debt.
- Explore debt management options early to avoid complications associated with statute-barred debts.
In general, creditors cannot take legal action to recover statute-barred debts. However, if a debtor acknowledges the debt or makes a payment, the limitation period may reset, allowing for legal action.
Improving credit post-statute-barred debts involves:
- Building positive credit habits, like using credit-builder tools responsibly.
- Ensuring all current bills and financial obligations are paid on time.
The key takeaways include:
- Understanding the time limits for debt recovery.
- Knowing which debts are exempt from these limits.
- Recognizing the actions that can reset the limitation period.
- Using knowledge of the Act to navigate financial obligations responsibly.
