Statute barred debt

default
Helene Mueller
eCollect support team

The term statute barred debt is used in the meaning of a monetary obligation towards a creditor, which has a specific period of limitation. After this time frame passes, the debt is considered as uncollectible and it is no longer legally executable due to the lapsed prescribed period. Debts have different statute limitations across the world. In the United Kingdom and Wales, under the Limitations Act of 1980, simple contracts and unsecured debts have a limitation period of 6 years in total and secured defaults are valid up to 12 years after the date on which a liability has been marked as overdue. The same time frames are valid for Northern Ireland, under the Limitation (Northern Ireland) Order 1989. Scottish debtors and debt collectors comply with the Prescription and Limitation (Scotland) Act 1973, concerning statute barred debts, under which unsecured loans become void by prescription after 5 years.


Statute barred debt: How it works?

A debt is considered as out of date after a certain period of time, during which the creditor has made no attempts whatsoever to recover the amounts due from the consumer. If the debtor is not sure if the limitation period has passed, he can request a copy of his credit report, where there will be a record of all his liabilities with specific dates of first past-due payment occurrences, etc.

The time-frame starts to be counted out from the moment the creditor marks a monetary obligation as past-due. From this moment the borrower is considered to be in a bad debt situation and the liability becomes a default. If during this time-frame for a statute-barred debt the lender does not inform in writing the debtor about his payments to be made, does not contact him by phone or does not use any other type of communication towards the borrower, and the limitation period passes, the creditor will have no legal right to pursue debt payment from the consumer. Such debts are recognised as uncollectible and unenforceable, as for their limitation period has elapsed.

However, a statute barred debt can be pursued in the following cases:

  • When the lender has filed debtor’s profile to court and court actions have been taken against the borrower during this limitation period (for UK & Wales this is the so-called Country Court Judgement grant);
  • When a consumer/business debtor has paid part of debt’s amount during the same limitation period;
  • When there is proof that the consumer is aware of his debt situation (e.g. signed that he received a written reminder from the creditor or confirmed over phone/email, etc. that he has been cognizant of his monetary obligations towards the lender).

Disputation of a statute barred debt

A subject in debt has the full legal right to dispute a statute barred debt when the limitation period of collection has expired. As debt recovery attempts after the statute of limitation are strictly forbidden by law and are considered as harassment, a debtor can file a complaint in court. Even if the lender has started legal actions against the subject of debt, when a liability has passed its time-limit for collection, all court actions must be seized.

If a debtor has been contacted in connection with his past-due payments, which are with elapsed statute barred period, he should consult with legal representatives before paying the amount. A consumer can also request validation of debt from the creditor/the debt collection agency acting on lender’s behalf in order to prove the existence of such monetary obligation.

As debt recovery agencies act in compliance with different laws and regulations, protecting debtors’ rights, they are not allowed to attempt collecting the statute barred debt in any way, meaning:

  • Continue to contact the debtor in connection with his out of date debts;
  • Harass the consumer, threatening him with court or legal actions, if the statute barred debt is not settled in full;
  • Provide misleading information, deceiving the debtor about his debt limitation period;
  • Perform in-house visits and threaten with foreclosure or forcefully seize debtor’s belongings;
  • Frequent calls, letters or emails, used as debt reminders, even after the limitation period of the default has passed, threatening with court orders and court judgments. When a debt is marked as out of date, no legal orders and law documents can be enforced, because court will simply not issue such claims towards a debt with passed limitation period;

If, however, the creditor has successfully contacted the debtor in connection with his defaults, but the consumer has chosen to ignore these reminders, the lender has the right to pursue debt payment and even proceed to court actions.


Used literature & external links

http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm28384.htm
 

http://www.debtwizard.com/debt-help/guides-and-advice/130-the-limitation-act-1980
 

http://www.adviceguide.org.uk/wales/debt_w/debt_help_with_debt_e/debt_how_to_dispute_a_credit_debt_e/how_to_dispute_a_debt.htm
 

http://www.ehow.com/how_5686456_dispute-time_barred-debt.html
 

https://www.moneysmart.gov.au/media/275303/dealing-with-debt.pdf