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Statute Barred Explained

Here in the UK we have legislation that gives a creditor a specific deadline to start court action to recover money owed to them.  This means that if the creditor waits too long to begin the debt collection process, they may not be able to resort to the courts to recover the funds and the debt becomes “statute barred”. 

This legislation is designed to ensure fairness for the creditor so that they don’t have to wait for so long to take action that vital paperwork may have been lost, or the debt forgotten about.

In England, Wales and Northern Ireland, if a creditor leaves it too long before taking court action, the debt will become unenforceable – in other words, “statue barred”.  The debt will still exist, but the law cannot be used to prevent the creditor from obtaining a court   judgement to recover the funds owed.  However, depending on the type of debt, the creditor will have other means available to them to recover the debt.

In Scotland, however, if the creditor waits too long to take action, this will result in the debt becoming “extinguished”.  When a debt has been extinguished, according to the law, the debt no longer exists and there is nothing the creditor can do to collect the money owed to them. 

The period in which a creditor should begin court action is set out by law, with the length of time stipulated varying according to the type of debt – this period is known as a “limitation period”.

In England, Wales and Northern Ireland, the limitation period is six years and this applies to the most common types of debt, including credit or store cards, gas or electric arrears, personal loans, council tax arrears, payday loans, benefit overpayments, rent arrears, catalogue payments or overdrafts.  There are, however, some exceptions:

  • Personal injury claims have a shorter limitation period of three years.
  • Mortgage shortfalls have a longer limitation period of twelve years for the capital (money borrowed) and six years for the interest charged on it.
  • Income tax, VAT and capital gains tax debts to HM Revenue and Customers have no limitation period which means HMRC can take you to court for the money owed even if it dates back many years.
  • If a creditor has already obtained a court judgement before the limitation period passed, the debt will never become statute barred.

In Scotland the limitation period for most types of debt is five years and this applies to credit and store cards, personal loans, utilities arrears, housing benefit overpayments, payday loans, catalogue payments and overdrafts.  The exceptions in Scotland are as follows:

  • Mortgage shortfalls have a limitation period of 20 years for the capital, whilst the interest charge has a limitation period of five years.
  • Income tax, VAT, and capital gains tax debts to HMRC have no limitation period which means they can be enforced by court order at any time.
  • Council tax and some DWP benefit overpayments have a limitation period of 20 years.
  • If the creditor has already obtained a decree before the end of the limitation period, the debt cannot be extinguished.