What is the time limit for recovering debt? Can it be written off?

Certain time limits exist for creditors to take action against people who owe them money, before the debt becomes what is known as ‘statute barred.’ This timescale depends on the type of debt owed, and the action taken by the creditor.

The Prescription and Limitation (Scotland) Act, 1973, sets out the regulations about when a debt is regarded as ‘extinguished,’ – this can be either five years or 20 years. Some debts are never extinguished, for example HMRC can chase repayment of income tax and VAT arrears without limitation.

So under what circumstances might a debt be ‘extinguished’ in this way?

Statute barred debt

After five years, it may be too late for an unsecured creditor to take action if:

• They haven’t been granted a court decree during this time
• No repayments have been made in the previous five years
• You haven’t contacted the lender and admitted to owing the money

These guidelines apply to unsecured debt, including credit and store cards, personal loans, catalogue debt, and utility arrears.

If the creditor has proof that a payment was made during the last five years, however, or that there was an admission that you owed them this sum, then the limitation period must begin again from the dates when this happened..

Different time limits for writing off debt

Court decrees

A court decree is a money judgement made by the sheriff court that you owe your creditor a sum of money. If a decree has been obtained by the creditor, it is unlikely that you’ll be able to write-off the debt until 20 years after the date of the decree.

State benefits

Sometimes the Department for Work and Pensions (DWP) makes a decision that an individual has received too much in benefits. If you are in this situation, but in the last five years they haven’t made the decision to recover their money, you may be able to avoid repaying them.

On the other hand, if the decision to recoup the overpayment has been made, DWP may have 20 years in which to take enforcement action against you.

Council tax

The time limit for local authorities to collect council tax arrears is 20 years. This starts either from when the final demand was sent, or the date of your last communication that acknowledged the debt’s existence.

Mortgage shortfalls

Contradicting views exist on some repayments, and whether you can claim that money owed is now statute barred. This includes mortgage shortfalls, where your mortgage lender has repossessed your home but the mortgage is not repaid in full when the house is sold.

You would need to obtain professional advice on whether a five-year rule or 20-year rule would apply in your individual circumstances.

Seek professional guidance when responding to creditors

If one of your creditors is chasing you for payment of a debt that you believe is statute barred, you should seek professional advice straight away, to make sure that you respond in the correct way.

You will probably need to write to them quoting the Prescription and Limitation (Scotland) Act, 1973, and the fact that the time for recovering their debt has run out. It’s crucial to make sure that you use the right wording in your communications, however, otherwise your letter may be regarded as an acknowledgement of the debt’s existence, and start the time limitation period once again.

Scotland Debt Solutions can provide further advice on whether any of your debts are statute barred. We help Scottish residents escape the spiral of debt, and offer a same-day meeting free-of-charge.