International Debt Recovery Explained

Statute Barred Debt

Statute-barred debt is a legal term that most credit control teams and debt collection agencies will be familiar with.

It is a term that refers to the legal time limit that a creditor has to collect on an outstanding debt.

This time-barred debt becomes statute-barred after this set time period and when certain conditions are met.

In this post, we will examine statute-barred debt and how this type of debt can affect your business.

What does statute-barred debt mean?

Regardless of the size of your business or your sector, you must follow up on and chase outstanding invoices and overdue debts.

However, we know that, unfortunately, older debts do occur, and the most frequent question we get asked is, “can we continue chasing these debts indefinitely?” And “what is the deadline if you need to take a debtor to court to pursue legal action for the outstanding amount?”

This is where the statute of limitations comes in.

The statute of limitations is a law that protects debtors from being subject to extremely delayed court action.

This protection is in place because it is considered difficult for the debtor to defend a debt that occurred a long time ago, as they may no longer have access to key data, information, and paperwork.

The Limitation Act of 1980 (England, Wales, and Northern Ireland) sets a six-year timeframe for creditors to take legal action and pursue a debtor through the courts.

Note: This six-year timeframe is longer than in other European Countries, which have a much smaller time frame of three years. (Check out our latest post on ‘International Debt` to learn more about debt collection overseas.)

Scotland also has a slightly different law, with The Prescription and Limitation (Scotland) Act 1973, which states that a debt will no longer exist (at all) if enough time has elapsed. Again, there are conditions surrounding this to support the application for the debt to be written off.

However, in relation to the Limitations Act, a debt is considered statute-barred after a six-year period.

What does it mean when a debt is statute-barred?

When a debt has been classified as statute-barred, it means that it is no longer enforceable through the courts, i.e., it had passed the 6-year limitation period from when the debt became due, from when the last payment was made or when the creditor received a written acknowledgment of the debt from the debtor – ultimately there has been no communication between the debtor and the creditor for over six years.

Statute-barred debt can apply to all commercial, contract, and unsecured credit debts. However, there is an exception regarding mortgage payments, which has a limitation period of 12 years (however, interest on this can only be added for six years).

The conditions of a debt being acknowledged as statute-barred are:

  • The debtor hasn’t made a payment
  • The debtor has not acknowledged the debt
  • The credit hasn’t taken out a CCJ against the debtor.

For all statute-barred debts mean that debtors can no longer be pursued through the courts to repay the money owed, the debt still exists, and for creditors, it’s important to be aware that it may still appear on your credit file.

Small Business Debt Collection

When debts become statute-barred, most companies will look to write them off and suffer the consequences for their cash flow.

However, just because a debt is statute-barred does not mean it cannot be pursued and collected by professional and experienced debt collectors.

A small business debt recovery agency can help with outstanding debts in a number of ways.

For example, by instructing a debt collection team as early in the collections process as possible, the limitation period may well be extended as the debt collector makes contact with the debtor, who then acknowledges that the debt is indeed theirs (an email of acknowledgment will suffice in order to extend the limitation period).

Professional and experienced debt collection teams can successfully collect outstanding invoices if they are instructed to do so much earlier in your credit collection procedures.

Information for debtors

It is important for debtors not to ignore debt or overdue invoices. Often, the best solution is to work with your creditor to find a solution that works for both parties.

If a third-party debt collector is involved, work with them and discuss your options.

Small Business Debt Collection

At Direct Route, we work with businesses and credit control teams to remove the stress and worry that comes with collecting outstanding debts and invoices.

We help save you time, resources, and money by collecting overdue invoices before they become statute-barred.

To find out more about our debt collection service and for more information on how we can help you, email memberbenefits@directroute.co.uk or call a member of our team today at +44 7860 197 476; we’d be happy to help.