If you or your business struggles to pay debts, rest assured you are not alone. In mid-March 2024, celebrity chef Gino D’Acampo announced that a business he co-owns, The Pasta Bar, is £4.8 million in debt to trade creditors and facing a £113,975 tax bill from HMRC. It also owes an additional £53,304 in unpaid staff wages. Liquidators confirmed to The Mirror: “The realisations in the liquidation are insufficient to declare a dividend to creditors.” If you are facing insolvency, one question you may have is, “Are unpaid debts ever written off?” This article answers that question and more.
The limitation period is the first legal concept to consider concerning whether an unpaid debt is written off.
What is the Statutory Limitation Period on Unpaid Debts?
If creditors could pursue debts till the end of time, the court system would swiftly collapse. Therefore, the Limitation Act 1980 provides a statutory limit on how much time can pass before a claim relating to a contract or tort, such as personal injury, can be brought. Section 5 states that the time limit for bringing a claim founded on a simple contract is six years; for example, you agree to pay a telecommunications provider for supplying access to the internet. Most unsecured debts fall into this category, including credit cards, payday loans, and personal loans.
Note: Business-to-business debts will often depend on the wording of the contract you have signed with the supplier. If you are unsure if the limitation period applies, talk to an experienced Insolvency Solicitor.
Secured debts have different claim limitation periods. For example, if you default on your mortgage payments, the lender can sell your property to reclaim the money owed. However, if the sale does not cover the entire debt, the lender can pursue you for the shortfall for up to 12 years. The interest on the shortfall can be subject to a claim for six years.
Are Debts Owed to Government Departments and Local Authorities Subject to Limitation Periods?
Government departments such as local authorities, concerning council tax, and the Department for Work and Pensions, regarding benefit overpayments, can also pursue debts for up to six years. However, HMRC has no limitations on the length of time it can chase unpaid debts, except for National Insurance payments, for which the limitation is six years.
Does the Debt Disappear After the Limitation Period Has Expired?
Unfortunately, no; although, the limitation period bars creditors from claiming an unpaid debt, they can use other methods to recover the money. The most common approach is passing time-barred debts onto debt collection agencies, who often continue to pursue monies owed aggressively. It is important to note that if a creditor is authorised and regulated by the Financial Conduct Authority, FCA guidelines provide that they cannot contact debtors concerning time-barred debts. If they do, you can make a complaint to the FCA.
Does a Debt-Related County Court Judgement (CCJ) Ever Expire?
CCJs never expire, meaning the creditor can continue indefinitely to pursue you for payment.
How Do I Know if an Unpaid Debt is Time-Barred?
You may think it is a good idea to write to a creditor and either inform them or enquire if the deadline for demanding you pay a debt owed has passed.
Never, ever do this.
The limitation period starts from the date the creditor could have brought legal proceedings against you to recover the monies owed. In most cases, this is when they send you the first default notice, which states that you have 14 days to make up missed payments. If you fail to pay or ignore the notice, the creditor can bring a court action.
Here is the important point: if you contact the creditor in writing (this can include an email or text), acknowledging the debt, this will result in the limitation period resetting. It will also reset if you pay any money towards the debt, as this acknowledges that you owe the creditor money.
As an example, if you pay some money towards a debt that is five years old, the limitation period governing when court action can be taken against you immediately resets to six years from the date you made the payment.
How do I get a creditor to remove a time-barred debt from my credit file?
You can get a debt removed from your credit file if:
- The claim limitation period has passed, or
- It was placed on your file by mistake.
For this article, we will only be looking at removing time-barred dents.
Once a debt has been added to your credit report, it will remain there for six years and will then be automatically deleted. If the debt does not automatically disappear from your credit file, you can complain to the creditor and ask them to have it removed.
Should I Simply Wait to let the Limitation Period Relating to my Debt Expire?
This is never a good strategy to adopt. A creditor usually will not let six years pass before taking legal action. Furthermore, such a tactic is highly stressful, as not only will lenders be reluctant to lend you money due to the note on your credit file, but you will be fighting off constant demands for repayments.
If you have a debt you cannot pay, the best thing to do is talk with the creditor. Remember, they want to get paid and will typically help you work out a plan to pay the debt over time.
Should the creditor prove uncooperative, seek advice from an experienced Insolvency Solicitor who can provide expert assistance on the solutions available to help you manage the situation.
If you are in financial difficulties and facing insolvency, we can offer you clear, practical legal advice on how to navigate the law relating to debt recovery and comply with your legal obligations. Contact us on via email for more information.
