Statute Barred Debt, how it works and how it affects your credit report

Posted by Neil Greenhill in Dealing with Debt on 5 April 2016 - Neil is a Senior Credit Analyst at checkmyfile

A Statute Barred debt can generally be considered a debt where the time a creditor has to chase a debt has passed, declaring the debt statute barred will then be a defence against further legal action. Contrary to popular misconception, statute barred does not mean that your debt is written off.

In England, Wales and Northern Ireland the area is governed by the Limitation Act 1980. This Act covers the period during which a claim can be brought to court – this is known as the limitation period.

How it works

Under the Limitation Act 1980, a creditor has 6 years to pursue most outstanding unsecured debts and up to 12 years in the case of some mortgage shortfalls. There are three criteria for the limitation period to apply:

  • There must not have been a payment made towards the debt during the last 6 years
  • The debt must not have been acknowledged or confirmed by the debtor in the last 6 years
  • There must not be a pre-existing court judgment for the debt, where there is the limitation period does not apply – an existing court judgment is always enforceable

Should these three criteria be met it means that no further court action can be brought regarding this debt.

What happens when a debt is statute barred?

Where a debt is deemed statute barred the debt doesn’t cease to exist or disappear, it merely becomes unenforceable through the courts.

Where a creditor has not been in contact to chase the debt during the limitation period the FCA has stated in its Consumer Credit Sourcebook that the creditor should no longer try to enforce the debt. The FCA has also ruled in the same document that where a consumer states that they will not be paying as debt because it is statute barred and unenforceable the creditor chasing the debt should no longer seek to enforce the debt.

However, the rules do not exist to help people avoid their debts. If the creditor has continued to contact the debtor during the limitation period then they can continue to do this after the limitation period as well. Further, the contact does not need to have been received by the debtor – for instance where the debtor changed address without telling the creditor – the creditor only needs to have tried to contact you at the last address you provided.

In Scottish law

The rules in Scotland are different in that after the 5 years limitation period has ended the debt ceases to exist and so the creditor can’t ask for payment unless, as in England, Wales and Northern Ireland, a court judgment has already been obtained – in Scotland this will be in the form of a Decree .

So how does this affect the entries on your credit report? Ultimately it won’t have any impact on your credit report. It is possible for an account to be statute barred but still appear on your credit report, for instance where the company defaults the account after the last payment or acknowledgement the account will still remain on your credit report for 6 years after the date of default.

Equally it is possible for an account to be removed from your credit report but not be statute barred, for instance where an account defaults but you acknowledge the debt 3 years after the date of default an account would not become statute barred for another 3 years after the default is removed from the report.

Your credit report only shows how long entries will remain on your credit file, it will not make any indication regarding whether you can claim an account is statute barred.

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