What Is A Statute Barred Debt?

Did you know that you can’t just chase a debt forever? That there is, in fact, a time limit on how long you have to pursue action through the court system? It’s one of those, use it or lose it scenarios your parents always warned you about. We wrote an article about how important it is to chase debtors in a timely manner, which you can read here. But today we wanted to take a deeper look at the term ‘statute barred’, and what it means when a debt becomes ‘statute barred’.

The ‘Statute of Limitations’ Principle

You’ve probably heard of the statute of limitations. It’s a term usually thrown around in American courtroom dramas to point out that the courts can’t prosecute a crime after a certain length of time. They’re designed to protect defendants from extremely delayed litigation, which they may find difficult to defend because they don’t have access to key paperwork anymore.

While criminal cases don’t have a statute of limitations in the UK courts, we do still have a form of it in the debt collection world. It’s called ‘The Limitation Act 1980’. This law sets out a time limit for debt collection. After 6 years, a debt will become ‘statute barred’, which means it can’t be pursued or enforced through the courts. Most of Europe has a variation of this law, although the time limit for enforcement action against a debtor can be as little as three years.

What Types of Debt Become Statute Barred?

There is no such thing as a ‘normal’ debt. There are a wide variety of types of debts out there, so it’s important to understand what the type of debt you’re dealing with is. The six-year deadline applied to most types of unsecured debt, including commercial debts, as well as consumer borrowing through credit cards and personal loans.

However, not all types of debt are subject to the six-year statute barred limit. Exceptions include:

• Overdue mortgage payments (which have a limitation of 12 years, and interest can only be added for 6)
• Libel claims (which have a 1-year limitation period)
• Personal injury claims (which are three years)

If you’re not sure which type of debt you’re trying to collect and if it falls under this rule, give us a call and we’ll be happy to advise you.

When Does the Time Limit Start?

The question most people ask now is, when does the six-year countdown begin? At what point is the clock ticking, and how do you work out if the debt you’re trying to collect has already reached the time limit?

The answer, thankfully, is simple. The six-year limitation period starts at the latest date from the following options:

• When the debt became due
• When the last payment was made
• When the creditor received written acknowledgement of the debt from the debtor

There’s a common misconception that a debt will automatically be statute barred six years after the due date. For example. With persistence a good debt collection agency may be able to make contact with the debtor. If the debtor refuses to accept that they owe the money, then that six-year period stays the same. But if they at least acknowledge that they owe the amount being sought, or ask to repay in instalments, then the six-year limitation period will start again. It’s just one of the reasons it’s always worth talking to a professional debt collector, rather than assuming an old debt should be written off.

At Debtcol, we specialise in working with business owners to recover money owed and put systems in place to minimise late payments in the future. Our team are experts in all areas of debt collection law, and can help you understand whether your debt is statute barred, and if it is, where to go from there. If you would like more information about recovering unpaid invoices, even after a long time has passed, just get in touch with the team today and book your free consultation.