What is a statute-barred debt?
Statutory Barred Debts
We get a lot of questions on our blogs or through our social media platforms from clients asking how long debtors are liable for an unpaid debt... In today’s blog we are going to review some of the common questions we are asked about the limitation period of unpaid debts.
What is a statute-barred debt?
It can come as a surprise to some businesses to learn that their unpaid accounts must be recovered within a certain time frame. If you fail to collect payment within the limitation period, a debt becomes a statue barred debt. It means that by law (the Limitation Act), the creditor has run out of time to Recoup the unpaid or overdue invoices.
What are the time frames?
In England, Wales and Northern Ireland the limitation period is typically six years. This is the case for a lot of types of debt:
· Overdue invoices
· Consumer Credit Act debts
· Credit or store cards
· Personal loans
· Utilities (gas or electric)
· Council tax
· Overdue rent
There is no time limit when it comes to chasing income tax and VAT unpaid debts. HMRC can pursue unpaid debts indefinitely. Mortgage shortfalls only can become statute barred after 12 years for capital owed, and six years for the payable interest.
When does the limitation period start and how can it be “reset”?
According to the Limitation Act 1980, the limitation period starts running from the cause of action.' This is not straightforward to explain, and we will publish another blog on this subject in the future. For ease this can interpreted as when a debt becomes due, either because a contractual payment is required, or because of any default of any instalment due as per the payment terms in the contract.
The legislation surrounding the resetting of the limitation period is very specific in relation to what must occur:
· Communication between debtor and creditor confirming the debt,
· or payment towards the unpaid debt, has taken place.
· Acknowledgement of county court actions by the debtor.
County Court Judgments
County Court Judgments (CCJs) is issued by a court and is part of the debt recovery processes following a creditors successful court action. Any creditor that is unable to recover their debt through amicable means can commence actions through the courts and issue a CCJ following a successful action. Once a CCJ has been issued to a debtor enforcement options can be taken to recover the money or sufficient goods to cover the value of the debt and associated costs.
When do County Court Judgment become Statute Barred?
If your CCJ is more than six years old, and the creditor wants to use enforcement action, if a successful recovery has not been effected within this period then you will have to go back to the courts to obtain special permissions to continue the enforcement process.
Future-proof your business from late payments.
We understand that most business owners and financial professionals find chasing late payments as is time consuming with the potential of a lot of hassle. Try our These 4 Steps to remove the potential of having to right off stature barred debts.
1. Make sure that your Terms & Conditions outline payment duties for your clients and such details like what happens when the client misses a payment; and how they can be legally pursued.
2. Keep a constant line of communicate with your clients and confirm all agreements made via email. Have your email automatically send a payment reminder a few days before its due date.
3. Save lot of time and money by performing a company credit check before offering credit to any client. Their credit check history will tell you a lot about their business. Recoup provides clients a great monitoring service that send email alerts on any changes to a business credit history.
4. Keep on top of your debt ledger, some clients are happy to allow a debt to linger in their ledger. This can lead to all sorts of issues including clients going insolvent whilst owing you thousands. Go through your ledger weekly to make sure your completing step two. The longer you leave a late payment the more likely that the client will not pay their debt.
Contact Recoup Financial Solutions
Another way to help protect your SME or business is to get in touch with a professional Debt Collection Company like Recoup. We have a dedicated Debt Collection “Help Desk” to help provide businesses with a no Obligation Debt Appraisal for any debt related matter. Our help desk team will complete a risk analysis on each debt collection case, helping you identify your options and advising on a plan of action to Recoup the unpaid invoices you are owed.
