It is possible that outstanding debts over 6 years old may not have to be repaid. Perhaps a rather
complicated issue on the surface that needs some clarifying, especially if you have received any
paperwork regarding the collection of debts that may have been outstanding for longer than 6 years.
The answers can be unearthed by digging into the Statute of Limitations. What exactly is a statute of
limitations to the many of us who speak in laymen’s terms?
Wikipedia describes a statute such as this as follows, “A statute of limitations is an enactment in a
common law legal system that sets forth the maximum time after an event that legal proceedings
based on that event may be initiated. In civil law systems, similar provisions are usually part
of the civil code or criminal code and are often known collectively as “periods of prescription”
or “prescriptive periods.”
What Does the Limitation Act Say?
The Limitation Act 1980 sets a time limit on how creditor has to take court action against you for unpaid debts. There are different time limits depending on the type of debt you owe. Generally creditors should not persue you if they have been out of contact for 6 years or more. So, you cannot simply delay repayments for 6 years and have them written off. The creditor must have neglegcted to persue you for the debts for a period of 6 years.
You cannot use the satute of limitations if a court order has already found in favour of the creditor. Court orders stand regardless of the amount of time passed.
You can ask for a court order to be “set aside” if it was made after the 6 year limititation applied. So, for example, if you have not been contacted for 7 years and a court order is obtained by the creditor you can go back to the court and ask them to “set aside” the ruling so that you can submit a defence based on the limitation act.
Debts that are covered by the limitations act include council tax, community charge, benefit over payment, social fund loans and student loans. Mortgage debt remaining after sale or reposession may be claimed for 12 years. Income tax and VAT are not subject to any time limit, you can always be persued for these debts.
Debt Limitation Made Simple
So, let’s try and understand this in the simplest way possible. For example, I hypothetically, owe you
a sum of money for a loan you kindly provided me with. A period of time has passed and you have
still not demanded the money from me, further time still passes and it appears that debt has been
all but forgotten by you and by me.
Suddenly, years later you remember that I still owe you a not insignificant amount of money but
because this certain amount of time has passed (decreed by law, depending on the statute) without
proceedings to recover the money being initiated, it as though I no longer owe you the money and
the debt has been wiped out.
Can it be simplified even further? In some cases, there are time limits imposed on the procedures
that need to be initiated in order to retrieve outstanding debts. If action is not taken within these
time limits then the creditors could find themselves out of pocket and with nowhere to turn and the
debtor, debt free.
Under the UK (England and Wales) statute of Limitations Act 1980, there are different time periods
for different debts. Mainly 6 years for simple contracts and 12 years for those contracts that may be
under seal. (Such as mortgage issues)
There are areas that need closer inspection, however. For example if you are a debtor that falls
under the simple contract (6 years) limitation and you happen to acknowledge your debt in writing
or make any kind of payment towards that debt within that initial period, then that 6 year cycle
begins all over again from that moment, and you are still liable for the debt.
From the creditor’s point of view, it appears imperative that they take the correct course of action
within the required time.
Credit Rating Warning
Unpaid debts, even if under the Limitations Act, may still cause problems in the future, especially
when it comes to credit rating. Even though a debt may not be enforceable, due to the points
discussed, this does not mean that it won’t be filed onto your credit history and create an
unfavourable credit rating. If this is an undesirable outcome, then the sensible option is to clear the
debt in full.