Time limits for debt recovery
Will debt collectors chase me for debt?
When you go into an agreement to borrow money (or ‘credit’), there will be a set deadline of when you are expected to pay back your debts. If you do not pay back what you owe at the agreed time, your lender (or ‘creditor’) will be able to chase you for payment by means of letters and, after a period, court action.
Your lender could run out of time to collect what is owed to them and there is a possibility the debt could become statute-barred. There is a chance you may not have to pay the money back but the Limitation Act 1980 sets out the guidelines on this.
Is there a time limit for collecting debt?
Debt recovery limitation periods can differ depending on the type of debt and will start from the ‘cause of action’ – you will need to get this clarified to know when this begins.
The limitation for unsecured credit debts, such as personal loans and credit cards, is six years. If a creditor obtains a CCJ against you, then the Limitation Act does not put any time-scales on how long they have to enforce that judgment.
What’s the meaning of a statute-barred debt?
If your lender doesn’t chase you for any unpaid debts within a set time, the law could fall on your side and deem the money you owe to your creditor as statute-barred, or, unnecessary to pay back.
It’s important to know that if your debt is statute-barred it doesn’t mean that it no longer exists. Your creditor will be within their rights to chase you for the money and, although you may not have to pay it back, you may want to as this could improve your credit reference file.
Failure to pay back debts, even those that are statute-barred, will result in a mark on your credit reference file and you will find it harder to get credit at a reasonable rate of interest.
Which debts can be statute-barred?
As well as unsecured debts you may owe to creditors, there are secured debts that can still be statute-barred. These include:
- Council tax payments
- Income Tax and VAT
- Benefit payments
- Student loans
- Child maintenance payments
How to avoid your credit score being affected
The simplest way to ensure you maintain a healthy credit score is to pay your debts back either in full or at an agreed, negotiated rate. You should contact the creditor you owe money to before seeking advice as you may be able to work out a plan together.
Your creditor may be willing to end your agreement early if it means they are paid back a proportion of their debt up front, so at least they get a sizeable amount of their money back. You could also ask for a payment plan, whereby you pay your debts back over a longer period of time, maybe with fees attached.
Failure to act could mean your creditor chases for you money and seeks legal action to collect the money owed to them. This could mean appealing for you to be made bankrupt, which would affect your finances, assets and credit score going forward. Therefore, it’s not worth hoping your debt will become statute-barred in time as there could be severe risks before it gets to this stage.
How will I be affected if I have a joint debt?
If you are being chased for a debt that is in joint name with somebody else, your creditor is within their rights to contact both of you for the amount, regardless of whether one of you is committing to the payments and the other isn’t.
You should try to work with the joint party, to make sure you can afford paying back your debts as failing to do will affect you both.