What Makes Debt Statute-Barred Under UK Law?
Understanding when a debt becomes statute-barred under UK law is crucial for anyone managing outstanding debts. Statute-barred debts are no longer enforceable through the courts due to the passage of time, offering significant relief for individuals struggling with old debts. This article provides a detailed overview of what constitutes a statute-barred debt, the specific conditions required, and notable exceptions within different regions of the UK.
Statute-Barred Debt in England, Wales, and Northern Ireland
In England, Wales, and Northern Ireland, a debt becomes statute-barred when it meets the following criteria:
Time Limitation
- Six-Year Rule: A debt becomes statute-barred if it has been more than six years since the debtor last made a payment towards the debt or acknowledged it in writing. This six-year period starts from the date of the last payment or written acknowledgment.
Acknowledgment of Debt
- Lack of Acknowledgment: During this six-year period, if the debtor has not acknowledged the debt in writing, the debt may be considered statute-barred. Acknowledgment can include any written communication that confirms the existence of the debt or acknowledges responsibility for it.
Court Action
- No Court Action: The debt is also considered statute-barred if the creditor has not initiated court action to recover the debt. Specifically, if no County Court Judgment (CCJ) has been obtained within the last six years, the debt cannot be enforced through legal proceedings.
Cause of Action
- Expiry of Cause of Action: The creditor must have had a valid “cause of action” to pursue the debt. If the cause of action arose more than six years ago and no court action has been taken, the debt is statute-barred.
Resetting the Limitation Period
- Impact of Payments or Acknowledgment: If the debtor makes a payment towards the debt or acknowledges it in writing, the six-year limitation period resets. This means that the creditor can again pursue the debt legally, starting a new six-year period.
Prescribed Debt in Scotland
In Scotland, the concept of statute-barred debt is referred to as prescribed debt, and the rules differ slightly:
Five-Year Rule
- Prescription Period: In Scotland, a debt becomes prescribed after five years rather than six. The five-year period begins from the date the debtor last made a payment or acknowledged the debt in writing.
Extinction of Debt
- Legal Status: Once a debt is prescribed, it is considered to no longer legally exist. The creditor is unable to pursue the debt through legal means, providing the debtor with relief from the obligation.
Exceptions
- Mortgage Shortfalls: Mortgage shortfalls have different rules. The capital owed on a mortgage can only become statute-barred after twelve years, while interest on the mortgage shortfall becomes statute-barred after six years.
- HMRC Debts: Debts owed to HM Revenue and Customs (HMRC), including income tax and VAT, do not fall under the statute-barred rules. There is no limitation period for these debts, meaning they can be pursued indefinitely.
- Personal Injury Claims: Personal injury claims have a separate limitation period of three years from the date of the injury or from the date the injury was discovered.
- County Court Judgments: If a County Court Judgment (CCJ) has been issued against the debtor, the debt cannot become statute-barred. The CCJ remains enforceable regardless of the time elapsed.
Summary
To summarize, statute-barred debts in England, Wales, and Northern Ireland are debts for which no payment or written acknowledgment has been made for six years, and no court action has been initiated within this period. In Scotland, debts become prescribed after five years of non-payment or acknowledgment. Notably, there are exceptions, including mortgage shortfalls, HMRC debts, personal injury claims, and debts associated with County Court Judgments, each having its own rules regarding limitation periods.
Understanding these details is essential for effectively managing and resolving old debts, ensuring that individuals are aware of their rights and obligations under UK law.