Being in debt can be daunting and it’s normal to feel like you’re stuck in a never-ending cycle of missed payments and mounting interest that you’ll never escape from.
However, under some circ*mstances, your debt can be written off after six years, clearing you of your financial obligations and declaring you debt-free.
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Does a debt automatically get written off after six years?
There is a common misconception that all debts get automatically written off after six years, but this isn’t always the case.
Because of something known as a statute of limitations, some debts become unenforceable after six years.
This means that creditors can no longer chase you or take legal action against you for the amount owed.
However, the statute of limitations only applies to certain debts and doesn’t necessarily eliminate the debt, only the possibility of creditors taking legal action against it.
How does a debt become statute barred?
Under the Limitation Act (1980), for an outstanding debt to become statute barred, it must:
- Be at least six years old
- Have not been paid in full or in part in six years
- Have not been acknowledged in writing in six years
- Have not led to the issue of a CCJ
However, if either of these things happen within six-year limitation period, the clock will reset itself and you will have to wait another six years until the debt becomes statute barred.
This is why it’s important to keep a note of when you last paid or acknowledged a debt.
What debts become statute barred after six years?
Most unsecured debts become statute barred after six years. Unsecured debts are debts that are not taken out against an asset or covered by a guarantor, such as:
- Credit cards
- Overdrafts
- Store cards
- Bank loans
- Personal loans
- Payday loans
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What are the exceptions to the limitation period?
While most unsecured debts are subject to a six-year limitation period, there are some exceptions to this rule.
Mortgage shortfalls
If you still owe money on your mortgage after your home has been repossessed, the remaining amount is known as a mortgage shortfall.
Mortgage shortfalls have the longest limitation period of 12 years, while interest on mortgage shortfalls have a limitation period of six years.
Personal injury claims
The limitation period for debts arising from personal injury claims is three years. This means legal action must be taken within three years of the accident happening or the ‘date of knowledge’ which is the date of your diagnosis or when you first became aware of your injuries.
Income Tax and VAT
The Limitation Act (1980) doesn’t cover Income Tax and VAT debts. This means, if you owe money to HM Revenue and Customs (HMRC), there is no limitation period and you can be chased indefinitely until the debt is repaid.
However, because National Insurance is not classed as a tax, it will become statute barred after six years.
Benefit or tax credit overpayment
Sometimes, calculation errors and fraudulent claims can lead to a benefit or tax credit overpayment.
When this happens, you will automatically owe money to the Department of Work and Pensions (DWP).
The limitation period for benefit overpayments is six years, but the DWP will almost always try to recover the amount they are owed before this time limit by reclaiming the money through future payments.
County Court Judgments
If your creditor has already issued you with a County Court Judgment (CCJ) for an unpaid debt, the Limitation Act (1980) will no longer apply, meaning there is no limitation period.
However, if the CCJ was issued more than six years ago, the creditor may need the permission of the court to enforce the debt.
Council Tax
Similar to Income Tax and VAT debts, Council Tax arrears also have a limitation period of six years.
However, local councils will rarely let unpaid Council Tax go six years without resorting to legal action to recover the money they are owed.
Student loans
Student loans issued by the Student Loans Company (SLC) have no limitation period, meaning they can be chased for longer than the usual six-year time limit.
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What is a default notice and what does it mean?
Can I be chased by debt collectors or debt collection agencies for a statute barred debt?
While no legal action can be taken against statute barred debts, the debt will technically still exist and creditors are still free to recover it through alternative means.
For example, they may get in touch with a debt collector or a debt collection agency to recover the amount they are owed, at which point you can choose to repay what you owe if you wish.
However, if you are being threatened with legal action over a statute barred debt, it will be cancelled if you can prove the limitation period has expired.
As soon as you are informed of legal action being taken over a statute barred debt, you must take action as soon as possible to prevent things from progressing.
Failure to respond may lead to the court action being enforced, even if the debt is statute barred, as well as further legal action being taken against you.
It will then be up to the creditor to prove the debt is still enforceable. If you are found liable for the debt, you must legally repay it.
If the creditor can’t prove that you owe the money, any legal action will be stopped.
Will statute barred debt affect my credit rating?
Statute barred debt won’t be mentioned on your creditor report, but the missed payments or defaults that led to the statute barred debt will be noted on your credit file for six years.
For example, the limitation period on an unpaid debt will begin when you receive a default notice warning you that you’re close to breaking your credit agreement and defaulting on the debt.
If you don’t make a payment or acknowledge the debt within six years of receiving the default notice, the debt will become statute barred and the default notice will be removed from your credit report at the same time.
During this time, it can be difficult to get approved for further credit and, even if you are, you will usually be subjected to the highest interest rates.
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Can I ignore a debt for six years?
It can be tempting to wait out the limitation period on outstanding debts and hope your creditor doesn’t take legal action against you during that time.
However, while creditors are expected to adhere to fair debt collection practices, they may resort to harassment or bullying in an attempt to recover the amount owed.
This could lead to non-stop phone calls or visits to your property in an attempt to force you to hand over the money or seize goods equal to the value of the debt.
Remember, any money you have been ordered to repay towards a CCJ or to HMRC will never become statute barred, so it is advisable to make payments towards these debts or come to an agreement with your creditors as soon as possible.
If you’re still being chased for a debt after six years, it’s unlikely to go away until it has been repaid or you come to some sort of agreement with your creditor.
Because of this, most people explore formal debt solutions to repay what they owe in manageable instalments and put a stop to creditor contact and harassment.
