If you live in Scotland statute barred debts are governed by the Prescription and Limitation (Scotland) Act 1973. Under this Act most unsecured debts become statute barred after 5 years rather than 6 as in England, Wales & Northern Ireland. To understand whether a debt has become statute barred in Scotland similar tests as those in England are used.
The debt becomes statute barred if:
1. The creditor has not already obtained a decree against you (the equivalent to a CCJ in England) and
2. You or anyone else owing the money (on a debt in joint names) have not made a payment on the debt during the last five years; and
3. You have not written to the creditor admitting you owe the debt during the last five years.
BMD Tip: If you were living in England when you took on the debt but have now moved to Scotland whether or not the debt will be statute barred after 5 years will depend on how long you have been resident in Scotland. After you have been resident in Scotland for 6 months the Prescription and Limitation (Scotland) Act 1973 will then apply to your debts.
Is a Statute Barred debt written off?
The Prescription and Limitation (Scotland) Act 1973 goes further than the Statute of Limitations in England in so much as once a debt is Statute Barred it actually ceases to exist.
If you have started to make payments on a debt after the five year limitation period has run out your payments will not revived the debt. The debt is still ‘extinguished’ and legally no longer exists. You can even argue that the creditor should pay back the money that you have paid because there was no debt to be paid off.
Debts which are not Statute Barred after 5 years in Scotland
If you are living in Scotland it is important to understand that there are some debts which are not statute barred after 5 years:
Debts owed to the Department of Work and Pensions
These debts include overpayment of social security benefits. There are unusual because the Department for Work and Pensions (DWP) has six years to take action through the courts to recover benefit overpayments. The time starts running from the date of the decision that the overpayment was recoverable.
However if more than six years have gone by it may still be possible to recover the overpayment by reducing another benefit you receive as the DWP do not have to go through the courts to do this.
BMD Tip: The usual time limit of five years applies to overpayments of Housing Benefit.
Sheriff court decrees
A Sheriff’s Decree is similar to a CCJ in England or Wales. If a creditor has already been to court and a Decree has been issued against you they will usually have up to 20 years to start ‘enforcing’ the decree and you cannot use the Prescription and Limitation (Scotland) Act to dispute you owe the debt.
Council Tax/Community Charge
Arrears of Council Tax and Community Charge can be recovered for up to 20 years. This time limit runs from the date of the final demand, or from the last time that the debt was acknowledged by you (or an agent acting on your behalf).
There is a two year rule for new liabilities for Community Charge. This means that if you had not been on the Community Charge register but it was later found that you should have been, you can argue that you only owe up to two years Community Charge before your name was put on the register.
Income tax and VAT
There are no time limits which stop HM Revenue and Customs from collecting tax once the initial assessment has been made.
Mortgage shortfalls
If your mortgage lender is chasing you for a debt left over when your house was repossessed or sold, there are time limits on claiming money owed, which vary according to the nature of the debt. The time limits for the capital part and the interest part of the debt are different. There is a 20 year limit to recover the capital part and a five year limit to recover the interest part.
Student loans
Student loan agreements are simple contracts and this gives the Student Loans Company (SLC) five years from the date you last paid or acknowledged the debt to go to court to enforce the agreement. There are two sorts of student loans and different rules apply depending upon when you took out the loan.
Old style ‘mortgage’ student loans are Consumer Credit Act agreements. Payments cannot be automatically deducted from your wages. The SLC has to go to court before they can enforce the debt against you. This means that the time limits can apply if you have not paid or acknowledged the debt for over five years.
From September 1998 new style or ‘income contingent’ student loans include rules to say that repayments will be automatically deducted directly from your wages or through your tax return if you are self-employed. This means that the SLC are still allowed to take money from your wages for a loan over five years old as they do not have to go to court to do so.
What to do if you believe a debt is statute barred
If you live in Scotland and you believe a creditor has contacted you about a debt which is statute barred you should write to the creditor telling them about The Prescription and Limitation (Scotland) Act and disputing that you owe the debt.
BMD Tip: If you would like to use the BMD Statute Barred debt template letter please contact us and we will e-mail it to you. The letter can be amended with your details. You should send the letter to the original creditor (rather than a debt collector) recorded delivery to prove postage.
The Office of Fair Trading (OFT) is on your side. The OFT have issued Debt Collection Guidance which looks at whether a debt is being collected fairly. They say that it is unfair for a creditor to pursue a debt in Scotland if they have heard nothing from the debtor for five years and it is unfair to mislead you by saying the debt is still legally recoverable when it is not. It is also unfair for a creditor to keep pressing for payment after you have told them you won’t be paying the debt because the creditor is out of time to collect it.
If you think that a creditor or debt collector is ignoring the OFT guidance then you can complain to your local trading standards department in the council. They may take up your case for you. You may also complain to the OFT. The OFT does not usually take up individual cases but their Debt Collection Licensing Enforcement Team collects information that can be used to take action against problem creditors, who can even lose their consumer credit licence.
