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:
- 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.
- 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