The Limitation Act 1980 applies to various classes of actions mentioned in Part I of the Act. Some rights of action never expire but generally a claimant must act within a given time, known as the limitation period. Otherwise, the right of action is lost and the claim is said to be barred or statute barred.
As a general rule the limitation period is 6 years for simple contracts, such as a credit card debt or unsecured personal loan. However, an action to recover land for example is generally subject to a limitation period of 12 years. Furthermore, the limitation period is suspended following legal action begun by an application to court. Once the limitation period stops running, any delay to progress the matter is immaterial but the proceedings may be struck out on account of the claimant’s failure to get on with the case, which causes the defendant to suffer prejudice from the delay or causes a fair trial to become impossible. The claimant could then lose the right of action forever.
The Office of Fair Trading Debt Collection Guidance is a useful source of information concerning statute barred debts as is the Insolvency Service. With regard to insolvency proceedings, if a debt becomes statute barred at the time of the presentation of a petition, then the petitioner is not at that date a creditor and therefore has no standing to present a petition in that capacity. Debts incurred more than six years before the winding-up or bankruptcy order (or more than 12 years in the case of a debt resulting from a charge made under a deed, such as a mortgage) are also not provable.
Creditors are permitted to chase the debt indefinitely, even after the debt has become statute barred, but they only have access to legal recourse to recover the monies during the limitation period.
Creditors may therefore legally pursue an unsecured debt in the following circumstances:
- The action commences within the limitation period
- The creditor has previously obtained a judgement, such as a CCJ although the creditor may need to apply to court to enforce the judgement after 6 years
- You, or anyone else named on the credit agreement, have made a payment to the account within the last 6 years
- You have established any contact with the creditor to enquire after the balance of the account or update personal details.
It is important to note that if you acknowledge the debt in writing or make a payment within the original limitation period, the time limit starts running again and the debt will not become statute barred for another 6 years from the date of your communication with the creditor.
HM Revenue & Customs are at liberty to pursue you indefinitely for debts owed to them. However, overpayments of benefits must be recovered within 6 years otherwise the Department of Work & Pensions will need to apply to court.
Even if a claim becomes statute barred, a debtor may decide to pay the debt after the expiry of the time limits. However, you should not feel pressured into doing so. It is considered to be unfair if a creditor or debt collector misleads you into believing the debt is still legally recoverable and demands payment after you have confirmed that you will not be paying the money owed. Such action by a creditor or debt collector, once the debt becomes statute barred, could be considered harassment contrary to the provisions of Section 40(1) of the Administration of Justice Act 1970.
Below is an example letter you may wish to use as a template if you have been contacted about the recovery of a debt and you believe such recovery action may be statute barred under the Limitation Act 1980.
Your Name and Address
Date
Creditor’s name &
Address
WITHOUT PREJUDICE
Dear Sirs
Account Number:
Thank you for your letter dated [insert date] in respect of the above account, which you claim is owed by [me/us].
[I/we] should advise you that, pursuant to the provisions of Section 5 of the Limitation Act 1980, "an action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued".
[I/we] should further advise you that in the Debt Collection Guidance published by the OFT in July 2003 (updated December 2006), with regard to statute barred debt "it is unfair to pursue the debt if the debtor has heard nothing from the creditor during the relevant limitation period" (page 13).
The last [correspondence/payment/acknowledgement of payment] of this debt was made over six years ago and no further acknowledgement or payment has been made since that time.
Therefore, unless you are able to provide documentary evidence of payment or receipt of written contact from [me/us] in the relevant period described under Section 5 of the Limitation Act, [I/we] suggest that you are no longer able to take any court action against [me/us] to recover the alleged amount claimed, that action being “statute barred”.
On page 13 of the aforementioned OFT guidance, you will note that "continuing to press for payment after a debtor has stated that they will not be paying a debt because it is statue barred could amount to harassment contrary to section 40 (1) of the Administration of Justice Act 1970".
[I/we] should therefore be grateful to receive your written confirmation that no further action will be taken concerning the above account as well as your written confirmation that the matter is now closed.
[I/we] look forward to hearing from you.
Yours faithfully
[Your signature]
