When Does A Debt Become Statute Barred?

A statute barred debt in Scotland is a debt that is written off after the passage of time and is no longer recoverable by the creditor after that passage of time, providing certain conditions are met. This area of law in Scotland is known as prescription and is governed by the  Prescription and Limitation (Scotland) Act 1973.

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

The logic behind prescribing a debt, is that after what is known as an appropriate date a lender only has a prescribed period of time to recover the debt or it  becomes unenforceable.  What can interrupt this process is if the creditor makes a relevant claim, or alternatively, the debtor makes a relevant acknowledgement of the debt.

There are two periods of prescription in Scots law. The first of these is known as Short Negative Prescription and is a 5 year period; the second is Long Negative Prescription, which is for a 20 year period.

What debts are covered by which prescription period?

Most debts are covered by the five year period. This includes credit cards, loans, store cards, hire purchase debts and rent arrears. It even includes mortgage arrears and benefit over-payments owed to the Scottish Social Security Agency.

The types of debts covered by the twenty year rule includes debts constituted by court orders (so could include types of debt normally covered by the 5 year rule), Summary Warrants or by an order of a tribunal or an authority authorised by legislation to order that a debt is due, which includes benefit over-payments owed to HMRC or the  Department of Works and Pension.

Some types of debt are also not extinguishable, and this means they can never be written off.

It is advisable to obtain specialist advice about whether a debt can be prescribed and what type of prescription applies to it.

When does prescription begin running?

An important question is what date does prescription begin running? This date is known as the "appropriate debt".

For credit cards, loans, and other consumer credit debts, that date is the date a default notice is served under the Consumer Credit Act 1974. This is the date the company calls up the debt as being due for payment. Or where the debt is not governed by the Consumer Credit Act 1974, when the creditors makes a demand for the sum owed.

In relation to rent arrears, it is normally when the last instalment is due or appropriate legal action commences.

In relation to debts covered by the 20 years rule, it is the date the court, tribunal or authority orders the sum due.

Establishing when prescription begins to run can be complex, depending on the type of debt and the terms of the contract entered and often may require specialist advice.

What constitutes a relevant claim or acknowledgement?

Once prescription begins running, it can be interrupted by relevant claims or acknowledgements. Both relevant claims and acknowledgements reset the running of prescription and reset the period back to the beginning again.

Relevant claims are when a lender either raises an action for, or obtains a court order or raises a petition for the sequestration of the debtor. It can also include executing recovery action such as  wage arrestments, attachment orders,  or serving a charge for payment or arresting the debtor’s bank account.

Every time the creditor makes a relevant claim, they interrupt the running of prescription, which begins again from the start.

A relevant acknowledgement is when the debtor acknowledges the debt and they do this by either 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 begins running again.

The running of prescription can also be interrupted when a debtor includes their debt into a Debt Payment Programme under the Debt Arrangement Scheme or obtains a time to pay direction or order or a Time Order under the Consumer Credit Act 1974.

In such a situation, prescription only begins running again when the debtor comes out the programme or the time to pay (unless they have successfully paid off all their debts). 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.

Where there is no relevant claim or  acknowledgement , then after 5 years or 20 years, depending on the prescription period that applies, the obligation to pay the debt is extinguished, even if a subsequent payment is made. The fact a debt is prescribed can be an effective defence in court that against a claim for a debt.

Although prescription can appear straightforward, it is actually a  complex area of law and advice should be sought where you believe a debt you owed 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

 

Comments

  1. Richard

    Hi

    I had an Argos card, which I had forgot about and have not paid anything since 4th October 2014.

    I have just received an annual statement and a letter from a collection company.

    As I have not acknowledged the debt or answered the letters, would I be right that I can write to them in October using a sample letter stating that time has run out to recover the debt?

    1. Scottish Adviser Post author

      Hi Richard

      I would probably advise against that.

      Although Short Negative prescription is five years in Scotland, there are a number of factors you need to take into consideration.

      The first is when did the prescription begin running? There has been a recent case in Scotland (PRA Group Ltd v MacPherson) where it was held prescription didn’t begin running until a Default Notice was served.

      You may want to find out when this happened first, by doing a credit check.

      Also, you may be better giving it six years to be on the safe side, as there has been a recent court decision where Sheriff Reid in Glasgow held a creditor could rely on the six year English Law Limitation rule in a Scottish Court, even when it involved a consumer debt.

      It was an extremely complex case, where Govan Law Centre argued, the lender couldn’t rely on the Limitation Act 1980 (6 years), as it was English Law and Scots Law on Prescription (5 years) had to apply.

      The Sheriff disagreed and held as the difference was so slight and the contract said the governing law was English Law, it could apply.

      So a belt and braces approach may be waiting 6 years from the date the account went into default.

      1. Richard

        Hi

        Thank you so much for the advice, I will wait until next year just to be sure.

  2. Heather

    Hi

    I have had a letter through the door from the sheriff court for a council tax bill I knew nothing about.

    It was originally for a low amount, but because it’s been left unpaid since 2009, I think it’s now sitting at £600.

    Is there anything I can do about this?

    I knew nothing about it as it was an old address and what I don’t understand is I’ve had a few addresses since then and paid council tax as normal and never been made aware of this bill.

    It was passed to this debt agency.

    How could they not have informed me when I’ve been paying council tax for years under the same name?

    I don’t understand it.

    1. Scottish Adviser Post author

      Hi Heather

      This may sound strange, but I think the reason they have not approached you before about this debt is because after you left your old address, you have been diligently paying your council tax.

      They won’t have known where the Heather who lived at your old address moved to and basically they have not linked the accounts. If you had got into arrears with other council tax bills after you moved, and entered into a repayment plan with them, they would have asked for your previous addresses and linked your accounts.

      It now appears they may have done a trawl and realised you are the same person.

      Council Tax Arrears unfortunately don’t become statute barred in Scotland for 20 years (written off), so they can still pursue you for it.

      The fact also it has been sitting for ten years shouldn’t have affected the amount owed though, as normally Councils use the Summary Warrant procedure to recover a debt and, therefore only add a 10% surcharge onto it. Interest is not normally added unless a different procedure is used, which it rarely is.

      However, if the council has previously instructed Sheriff Officers to try and recover it using attachments, Bank Arrestments, Earning Arrestments or a Charge for Payment, their fees may have been added.

      You may want to check you were liable to pay council tax at the time: were you a student? You may have been able to apply for an exemption. Or if you lived on your own, you may have been entitled to a single person discount.

      Some council may allow these discounts and exemptions to be backdated, but may have time limits as to how far they will allow a backdate to go. You can find out by visiting your local authority website.

      If you are liable for it, you will have to pay it. However, you want to avoid the types of enforcement action I have mentioned above.

      I would normally recommend you contact the Council first and verify you owe the money and ask them if they will enter a repayment arrangement with you, where you pay your current council tax and an amount on top of that to the arrears.

      They may tell you that you have to speak to the debt management company, who could in actual fact be Sheriff Officers. You may want to read my page on them.

      If you do have to contact them they may ask for ridiculous amounts and tell you that you need to pay it all immediately.

      Tell them you cannot afford this if this is the case. Tell them you will also have to pay your current council tax also (this should always be your priorty, otherwise your arrears will just increase).

      If you feel they are being unreasonable and you are getting nowhere, tell them you will need to seek advice from a money adviser and get an income and expenditure done to see what you can reasonably afford.

      Ask they put the account on hold to allow you time to get an appointment.

      You can go back to the Council and ask them to do this also, and ask whilst you are doing so, that they give you the contact details for your local free money advice service. They should help you.

      Alternatively, you can find your local Citizen Advice Bureau here.

      Be careful not to disclose too much information until you have agreed an arrangement, such as where you bank, where you are employed or if you have a car.

      If they come to an agreement, they may want this information, so if you stop paying they can use the above types of recovery action against you.

      However, do not volunteer it at this stage until they agree to enter a reasonable repayment plan with you.

      The important thing is don’t feel intimidated by them. If you feel you are getting nowhere, just ask they give you time to speak to a money adviser.

      If you think they are going to use any of the above recovery actions against you, you can apply for a Statutory Moratorium, which gives you six week protection to allow you to seek advice.

      You can only use this once a year, so before you do so, I always recommend you speak to a money adviser first, in case it is not necessary at this stage, but may be later.

      I hope this helps you out. Please don’t hesitate to come back on if I can be of more assistance.

      1. Jacqueline

        Hi

        I have had £875 arrested from my bank account.

        I am on benefits and this money was taken from a backdated Personal Independence Payment claim.

        Are they able they do this when you are on benefits?

        1. Scottish Adviser Post author

          Hi Jacqueline

          They are allowed to arrest your bank account, but if it is possible to show the only funds in that account are social security benefits, you can argue the arrestment is incompetent as the law protects social security benefits.

          If the funds have been mixed in with other funds, then this argument may not be available as the argument is that the mixing of benefit income with other income means it loses the protections.

          However, as is always the case, it may not be straightforward as the lender who has arrested the funds may argue the protection for benefits no longer applies in Scotland in relation to bank arrestments.

          If this is the case it may be necessary to raise a court action to release the funds. Your local authority money advice agency will help with this (even if it was the council that arrested the funds) or your local Citizen Advice Bureau (you can find them here).

          I am aware of cases in recent months in different parts of Scotland where this has happened and the creditor has refused to release the funds. However, they have been challenged in court and backed down because I understand a legal opinion has been written saying they cannot arrest benefits. It is a strong but complicated legal argument.

          I would suggest you contact your local money advice agency (see above) and get advice. Hopefully they can get your money back without it going to court. If they are having problems, you may want to suggest they contact me as I can help with the legal arguments if they need it.

  3. Gary

    Can a commercial landlord who increased the rent by rent review in November 2010, but never processed collection, now demand arrears from 2010?

    1. Scottish Adviser Post author

      Hi Gary

      Rent arrears are generally covered by the five year prescription rule, so after five years, providing no relevant claim has been made by the landlord and no relevant acknowledgement has been made by the tenant, the debt can prescribe.

      However, without knowing the details of your case it’s not possible to say whether there has been an interruption in the running of prescription, because there has been a relevant claim or acknowledgment.

      If there has been, the five years begins running again.

    2. Scottish Adviser Post author

      Hi Gary

      Further to my comments above, I have become aware today of a recent decision of the Scottish Sheriff Appeals Court, which addresses the question of when the five year prescriptive period begins to run. You can see my post about this here.

      This case concerned a consumer credit debt, but in terms of rent owed to a commercial lease, it will depend not only on the terms of the lease, but also when the court would consider the money to be payable.

      I would recommend speaking with a solicitor who specialises in commercial leases.

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.