Article by Erika Bone - 19th September 2018

The Limitation Act 1980 And Debt Time Limits

The majority of credit consumers believe that once a debt has been acquired, that debt will remain until the full balance has been cleared regardless of the length of time passed. This may not be the case though, thanks to a little-known piece of legislation known as the Limitation Act 1980.

What is the Limitation Act & How Does it Work?

This section of the law outlines the rules on how long a creditor can chase a non-payer for the outstanding balance, after which point it is declared Statute Barred. Does this mean that a debtor, armed with the knowledge of the Limitation Act, can evade payment of their debts?

The short answer to this is no. The Limitation Act, like all legislation, has numerous caveats and clauses included to prevent wilful abuse of the guidance and some debts are exempt from arbitrary timescales.

The greater part of the legislation concerns “simple contract debts”, which include unsecured credit cards, store cards, personal loans and mail order finance. The Limitation Act rules that a debt of this nature can become Statute Barred after six years. The term “statute-barred” literally means that companies are legally prevented from pursuing a debt through the court arena after the allotted period has passed, but that doesn’t mean the debt no longer exists.

Before a debt can be deemed “statute-barred” it has to conform to a number of conditions: Firstly, there can be no previous CCJs imposed on the particular debt. Secondly, the debtor must not have admitted to owing the debt for six years from the “cause of action”, which is usually when the original terms and conditions of the credit agreement allow for the creditor to take court action or more simply when two or three payments have been missed.

Creditors can take advantage of the fact that many consumers are unaware of the legislation and continue to pursue the debt after the legal timespan has passed. To counteract this, informed consumers can write a letter to the creditor or debt collector disputing the debt on the grounds of “statute-barring”. Once this dispute is raised, the onus of proof lies with the creditor to controvert the consumer’s defence.

Although the Financial Conduct Authority does not concern itself with individual cases, their Consumer Credit Sourcebook guidance can be used as a reference when disputing a debt under the Limitation Act legislation. The pertinent rule states that “a firm must not continue to demand payment from a customer after the customer has stated he will not be paying the debt because it is statute-barred” (Rule 7.15.8)

The “statute-barred” defence cannot be used with a number of other debts. Under the Council Tax Regulations Act of 1992, as long as a liability order is obtained promptly by a council it is not subject to any systemic timescales when enforcing a debt.

Mortgage shortfalls, where a property has been repossessed but the final sale amount was lower than the outstanding balance of the mortgage, are also time limited but the number of years vary depending on the origin of the debt. If the debt relates to outstanding capital owed, the timescale is twelve years, whereas any interest generated reverts to the standard six years deadline.

VAT and Income tax have no limitations or timescales and can be pursued indefinitely.

Does the Limitations Act Apply in Scotland and Northern Ireland?

In Northern Ireland the Limitations Act is carried out exactly the same way it is in England and Wales, including all timescales.

In Scotland the Limitations Act is largely the same as in England and Wales, Statute Barred status can be granted after five years, instead of six. In addition to the requirements for a debt to become Statute Barred in England and Wales, in Scotland a creditor also most not have contacted the debtor about the amount owed during this time.

How to see existing debts

To see the status of your debts as lenders will, your Credit Report will allow you to see six years worth of data. If you haven't already, you can try checkmyfile free for 30 days, and then for just £14.99 a month afterwards. It's the UK's most detailed Credit Report, and you'll get help and support from our friendly team of professionally-qualified Credit Analysts if need it.

Updated 19/09/2018 by Jamie Mackenzie Smith

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