Could debts be wiped out sooner?

Posted in 'Dealing with Debt' by Richard Catlin

17 June 2009

Proposed changes to the way that consumers can be pursued for outstanding debts could eventually have a huge impact on the amount of information contained on credit files, as well as potentially causing tens of thousands of court judgments to be issued overnight.

The Ministry of Justice (MoJ) has met with representatives from the debt collection industry to discuss potential changes to the length of time that companies can pursue consumers for civil debts. Currently, companies have a six year window in which to pursue a debt through the courts, from the date that the debt was last acknowledged – as established in the Limitation Act 1980.

The Act sets out that should a consumer get in touch with the lender at any point in that six year period however – other than to deny responsibility for the debt – then the clock is effectively reset, and the lender can continue to pursue it. Where a creditor has no contact with the lender, then the debt becomes what is known as “Statute Barred”, and is written off.

Debt industry officials have raised concerns over the proposed changes which would see the limitation period halved to three years, saying that it would put strain on lenders, debtors and courts alike. It is believed that the new timescale would force the fast-tracking of tens of thousands of judgments literally overnight.

The MoJ’s proposals have also drawn criticism for seeming to go against the Government's very vocal efforts to force creditors to give consumers more breathing space, instead encouraging them to pursue legal action earlier.

The implications of changes to the Limitation Act could be far reaching, and could potentially see similar amendments to the length of time that information is held on personal credit files.

Credit account information – which details how existing credit agreements have been repaid in the last six years - is one of the most important elements of a credit file as it allows potential lenders to accurately assess the likelihood of a customer defaulting on any credit facility extended to them.

Any reduction to the depth of information contained in credit files would see lenders having to make decisions based on less information, and would in turn lead to an increase in ‘bad debt’ – the very thing behind the current global financial crisis.

You can see what your credit file looks like with checkmyfile – including how you have paid your existing credit agreements each month for the past six years. Choose to base your report on Callcredit data (or on all three agencies with our Triple Agency Report) and you’ll even be able to see how your credit limit and balance has changed over time for each account.

View your credit report online now.