Statute Barred Debts

A statute barred debt in Scotland is a debt which is extinguished by operation of law and is no longer payable. The legislation that covers this area is the Prescription and Limitation (Scotland) Act 1973 (1973 Act).

The prescribed period is the amount of time the law says must pass uninterrupted before the debt is written off.

The logic behind prescribing debts, is a legal presumption that if the debtor has not paid anything over a set period of time, or confirmed to the lender in writing that he accepts he stills owes a debt, and the creditor has not bothered to enforce his claim, it is presumed the debt has been abandoned by the creditor.

In Scotland there are two periods of prescription that apply to debts. The first of these is short-term prescription and the second is long-term prescription.

Short-Term Prescription

The short-term prescription period and the rules that apply to it are contained in section 6 of the 1973 Act. It states that where prescription is not interrupted by a relevant claim or a relevant acknowledgement for a period of 5 years, the obligation to pay the debt is extinguished.

What constitutes a relevant claim would be where the lender obtains a court order legally constituting the debt or raises a petition for the sequestration of the debtor. It can also include taking legal recovery action known as diligence, which includes executing a wage arrestment, serving a charge for payment, or arresting the debtor’s bank account.

A relevant acknowledgement can only be made by the debtor themselves, and is achieved by making a payment towards the debt or acknowledging to the lender, in writing, that an obligation still exists (even if there is a dispute as to the amount owed).

Where there has been a relevant acknowledgement, the prescription period of five years starts running again from the beginning. This happens each time the claim is relevantly acknowledged.

Where there is no relevant acknowledgement or claim, then after 5 years the obligation to pay the debt is extinguished, even if a subsequent payment is made.

Long-Term Prescription

The long-term prescription period is 20 years. It can also be interrupted every time there is a relevant claim or acknowledgement made. When it is interrupted, it runs from the beginning again.

Long term prescription applies where a creditor has made a relevant claim for a debt, in the form of raising a court action for the payment of money, or presenting a petition for the sequestration (bankruptcy) of the debtor or executing a legal enforcement procedure, known as diligence (which includes executing an earning arrestment or a charge for payment or a bank arrestment).

The Interruption of Prescription

Prescription can also be interrupted by many factors, other than relevant claims or acknowledgements.

It can be interrupted when a debtor includes their debt into a Debt Payment Programme under the Debt Arrangement Scheme. In such a situation, prescription begins running again only once the debtor comes out the programme (unless they have successfully completed it and paid off all their debts). Also, any fraud or error on the behalf of the debtor that induces a creditor to not make a relevant claim can also interrupt the running of prescription.

Although prescription can appear straightforward, it is actually a very complex area of law and advice should be sought where you believe a debt has been prescribed.

A poorly worded letter to a creditor may constitute a relevant acknowledgement and may interrupt prescription running, meaning it starts again from the beginning.

The Consumer Credit Sourcebook

What the Financial Conduct Authority says about statute barred debts in their rule book for lenders.

In Scotland, a statute barred debt ceases to exist and is no longer recoverable if:

  1. a relevant claim on behalf of the lender or owner has not been made during the relevant limitation period; and
    the debt has not been acknowledged by, or on behalf of, the customer during the relevant limitation period.
  2. It is misleading for a firm to suggest or state that a customer may be the subject of court action for the sum of the statute barred debt when the firm knows, or reasonably ought to know, that the relevant limitation period has expired

A firm must not continue to demand payment from a customer after the customer has stated that he will not be paying the debt because it is statute barred

For more information about seeking advice see Scottish Financial Health Service.