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What is a statute barred debt?

Did you know that there’s a legal time limit for debt collection? Understanding how and when a debt becomes ‘statute barred’ is important for all creditors. Here’s our handy explainer.

If you’re not a lawyer or debt collection specialist, some of the terminology used in the legal side of debt collection can be a bit mystifying. And one of the most commonly used terms is ‘statute barred’. What does this actually mean for you as a creditor?

It’s always preferable to chase an overdue debt promptly. However, we all know that’s not always possible. So, what happens with older debts? Can you go on chasing them indefinitely? Is there a deadline for taking court action against the debtor?

The ‘statute of limitations’ principle

You may be familiar with the term ‘statute of limitations’ from American crime dramas. Statute of limitation laws are designed to protect defendants from extremely delayed litigation, which they may find difficult to defend because they no longer have access to key evidence such as relevant paperwork.

In the UK, unlike in other countries, criminal cases have no limitation period set down in law. However, this is not true for business and consumer litigation, for example debt recovery. In England, Wales and Northern Ireland, the Limitation Act 1980 sets a time limit of six years, after which a debt becomes ‘statute barred’, meaning that it’s no longer enforceable through the courts. This is a longer period than in many countries in Europe, where time limits to take enforcement action against a debtor can be as little as three years.

What types of debt can become ‘statute barred’?

The six-year deadline applies to many types of unsecured debt, including commercial debts, as well as consumer borrowing via credit cards and personal loans. Exceptions include overdue mortgage payments, which have a limitation period of 12 years, although interest can only be added for six years. Claims for libel have a shorter limitation period (one year), as do personal injury claims (three years).

When does the six-year debt recovery limit begin?

A debt becomes statute barred after a six-year limitation period which begins 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.

This dispels the myth that a debt will automatically be statute barred six years after it became due. For example, with persistence, a good debt collection agency may be able to make contact with the debtor and enable the limitation period to be extended. If the debtor refuses to accept that they owe the money, the initial deadline will remain. However, if they at least acknowledge that they owe the amount being sought, or perhaps ask to pay in instalments, that means the six-year limitation period will be renewed.

Contrary to popular belief, it’s not necessary for the debtor to sign the written acknowledgement. A simple email will suffice.

Get professional help with debt collection

Putting your debt in the hands of a professional debt collection agency can take away stress and worry, not to mention saving you time and effort. At Redwood Collections, our expertise and experience can get results in even the most challenging cases. Alternatively, with our debt purchase service BRANCH we can relieve you entirely of the burden of an unpaid debt. That means you won’t have to go on chasing the debtor, but you won’t have to write off the debt completely. With Redwood on your side, your business can Grow Stronger.

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