Debt Wizard has created a template letter for you to download, change and send to the creditor. See the end of this article.
The Limitations Act 1980 outlines the time limit within which a creditor can pursue a debtor for outstanding debts and only applies when no contact has been made between the creditor and debtor within the given time limit. This Act applies to residents of England and Wales.
Creditors are given a fixed period of time to chase their debtors, which is outlined in the Limitations Act 1980. The time scale mainly depends on the type of debt and can be extended at the courts discretion. The time limit begins when you last admitted owing the money or made a payment.
Should the creditor fail to maintain contact with the debtor, for a period of 6 years or more, it is possible to claim that the outstanding debt is "Statute Barred" under the conditions of the Limitations Act 1980.
In Northern Ireland, statue barred debts are governed by the Limitation (Northern Ireland) Order 1989. In Scotland, statute barred debts are governed by the Prescription and Limitation (Scotland) Act 1973 which states that the debt itself ceases to exist after five years providing that it has not been acknowledged and that no relevant claim against it has been made by the creditor.
Depending on the type of debt in question The Limitation Act 1980 has additional effects:
Unsecured debt
You may have assumed that your creditor has "written-off" a debt if you have not heard from them for a long period. In many cases, it could be down to your failure to inform them of a change of address, but the debt will still exist and creditors are entitled to chase the debt indefinitely (even after the debt has become Statute Barred), however they can only use the legal system to recover the monies for up to 6 years after the last payment was made to the account.
Creditors are still able to pursue an unsecured debt if:
- They have previously obtained a County Court Judgement, CCJ, against you.
- You or anyone else named on the agreement have made a payment to the account within the last 6 years.
- You have established any contact with the creditor (this can be a phone call or letter to request a balance or change your details), except to deny that the debt exists.
- If a creditor continues to contact you after accepting that a debt is Statute Barred and you have stated that you no longer intend to pay the debt, you may be able to claim harassment contrary to section 40 (1) of the Administration of Justice Act 1970. See How to stop creditor harassment + template letters
County Court Judgement
If the creditor has previously taken you to court and you have received a County Court Judgement, CCJ, then you will be unable to use the Limitations Act 1980 as a defence and to dispute the debt. If the judgement is over 6 years old the creditor may need to go back to the Court to enforce the debt.
Council Tax
If the Council tax was due more than 6 years ago then the Council can go to Court and request a Liability Order. The Liability Order allows the Council to deduct the money due from your wages or benefits. The Council will be granted the liability order unless you defend the debt.
Mortgage shortfalls
Your mortgage lender may begin chasing you for a mortgage shortfall, which was the result of repossession. The time limit is slightly different for the mortgage lenders as they have 12 years before the debt becomes Statue Barred. See www.debtwizard.com for further information on this.
Student loans
Basically there are two sorts of student loans and different rules apply depending upon when you took out the loan. The first type is called the 'old style' or commonly known as ‘mortgage’ loan and the second type is the ‘new’ style which commenced September 1998.
Old style
Student loans under the old style (mortgage loan) are seen as simple contracts and like other unsecured debts the lender has six years from the date of the last payment or acknowledge of the debt to issue proceedings for court. If however you have previously asked to defer the payments then this could be seen as acknowledgement of the debt which will start the six year time limit once more.
New style - September 1998 onwards
If your loan commenced after September 1998 then this type is referred to as an 'income contingent' student loans. This means that the repayments can be deducted from your monthly wages once you earn a certain amount salary. The repercussions of this means that the Student Loan Company (SLC) can still deduct the loan repayments after the six year rule and this does not come under the Limitation Act..
In April of 2009 the SLC changed the way they recovered what they call the ‘mortgage style’ student loan, under this new change they decided to contact borrowers by letter giving 28 days to respond. If after this period you fail to make contact or bring your account up to date then they can register your loan as a default with the credit reference agencies.
Even though the debt may be ‘statute barred’ they are entitled to register the non payment and default on your credit file for six years.
Income Tax and VAT
You can always be pursued for debts owing to HM Revenue and Customs no matter how old they are.
Benefit Overpayments
The Appeal Court ruled on the 14th October 2009 that the Secretary of State for Work and Pensions cannot recover overpayments of social security benefits through the courts where the claimant is not at fault.
The case was brought by the Child Poverty Action Group, CPAG, after the government wrote to over 65,000 claimants telling them it could take them to court at common law if they did not pay back overpayments.
The government letter acknowledged that the money was paid owing to a DWP error and was not recoverable under social security law. The benefits include many of those that cost the taxpayer the most, including income support, incapacity benefit, housing benefit, pension credit and the state pension.
Read more at Government cannot reclaim on overpaid benefits - new Appeal Court ruling.
What to do if a creditor contacts you after six years
- Do not admit to owing the money
- If you accept you owe the money then you may well be required to pay the debt back. If a payment is made, even after a 6 year gap, then the debt may still be unenforceable.
If you are contacted by a creditor with whom you have not had any communication with for 6 years or more then you should write to them quoting the Limitations Act 1980, do not admit acceptance or responsibility, send it recorded delivery to prove postage. See template letter below.
Office of Fair Trading (OFT) Debt Collection Guidance
The OFT has issued debt collection guidance which looks at whether a debt is being collected fairly.
They say:
- it is unfair to pursue the debt if you have heard nothing from the creditor for six years;
- it is unfair to mislead you by saying the debt is still legally recoverable when it isn't;
- it is unfair to keep pressing for payment after you have told them you won't be paying the debt because it is statute barred.
- simply sending a default notice or a letter demanding payment will not constitute a relevant claim.
If the creditor refuses to back down and you feel it is statute barred then you can complain to your local Trading Standards Department who should take up your case for you. You can also complain to the OFT although they do not usually take up individual cases however their debt collection licensing enforcement team will collect information from you that may be used at a later date to take action against the problem creditor. This may result in the creditor having its consumer credit licence removed.
Please note the OFT issued revised debt collection guidelines on 19 Oct 2011, the template below has been updated with these.
When you have finished remember to keep all the text the same colour and post the letter recorded delivery - you can print off proof of postage on the Royal Mail Website.
If you need more information about taking a claim to the Ombudsman then click here to visit their website: http://www.financial-ombudsman.org.uk/consumer/form/complaint_form.doc
