Can a Debt Be Too Old to Collect?
Is your business owed money by another company or individual? Has the debt been outstanding for a considerable amount of time? Then, before commencing collection proceedings, it’s vital that you establish whether the debt is too old to collect.
Can a Debt Be Too Old to Collect?
Is your business owed money by another company or individual? Has the debt been outstanding for a considerable amount of time? Then, before commencing collection proceedings, it’s vital that you establish whether the debt is too old to collect. Find out more in this blog from the Thomas Higgins team…
The answer
Let’s get straight to the point. Can a debt be too old to collect?
The answer is; it depends on the type of debt.
Most types of business debts are subject to a limitation period of six years.
This limitation period was established by the Limitation Act 1980, which provides timescales within which action may be taken (by issuing a claim) for breaches of the law.
For example, if another business breaches their contract with you (and subsequently owes you money), then you have a period of six years within which to make a claim against them.
The types of debts that typically have a six-year limitation period are ‘simple contract debts’ (which are classed as unsecured loans). In addition to business debts, these can also include:
- Credit card debts.
- Store card debts.
- Personal loan debts
- Debts from catalogues.
Should you fail to make a claim within the relevant limitation period, the debt will become ‘statute-barred’, meaning you will no longer be able to use certain types of action to recover the debt.
Bear in mind however, that even when a debt becomes statute-barred, it will still exist. As a result, it’s possible for a statute-barred debt to appear on the debtor’s credit report.
Note - not all debts have limitation periods of six years. Debts such as the capital owed on a mortgage are subject to limitation periods of 12 years.
Can a debt be too old to collect in Scotland?
Just as England and Wales have limitations on the collection of debts, so does Scotland. In Scotland, however, a different law sets out how long a Scottish creditor has to recover debt from a Scottish debtor.
The Prescription and Limitation (Scotland) Act 1973 sets out the various time limitations that apply to different types of debt.
For simple contract debts (also known as unsecured credit debts), such as credit cards, personal loans etc, a five-year limitation period applies. After this point, the debt becomes ‘extinguished’.
How do you know if a debt is statute-barred?
There are a number of ways in which you can establish whether a debt is statute-barred or not.
If any of the following apply, then the debt may not be statute-barred:
- The debtor has made a payment towards the debt within the six-year limitation period.
- The debtor has contacted you (the creditor) and acknowledged that they owe the debt.
Note - if the debtor disputes the debt and claims that it is statute-barred, the onus is on the creditor to prove otherwise.
How to collect a debt before it becomes statute-barred
If you’ve established that a debt is not statute-barred, then it’s essential that you take action to collect the debt as soon as possible. Time is of the essence.
Depending on the type of debtor you’re dealing with, there are a number of actions you can take to recoup your money.
The first action that many creditors will take is to issue a debt collection letter.
There are three main types of debt collection letters commonly used by creditors. These include:
- Letter before action - a letter before action (also known as a letter of claim or letter before claim), is a letter that acts as a formal statement of the creditor’s intention to begin legal action against the debtor.
- Late payment demand - a late payment demand letter is typically used when the debtor is a business. Late payment demand letters are issued when the creditor not only wants to recoup the money they are owed, but also when they want to claim compensation from the debtor.
- Pre-action protocol letters - when the debtor is an individual (or sole trader), a pre- action protocol letter is used to demonstrate that the creditor intends to begin court action should the outstanding debt not be settled.
In many cases, a debt collection letter is sufficient to make the debtor pay what they owe to the creditor.
However, should the debtor ignore the debt collection letter and/or fail to make payment, then the next step is to begin court proceedings against them. In many cases, this will take the form of obtaining a county court judgement (CCJ) against the debtor.
Do limitation periods apply to CCJs?
If you are able to obtain a CCJ against a debtor within the limitation period of the debt, then the Limitation Act does not apply. In other words, the creditor will not have any time limits on enforcing the judgement.
However, if a CCJ is more than six years old, and the creditor wants to use enforcement action (such as bailiffs) to recoup the debt, they are expected to ask the permission of the court to do so.
Recover debt with Thomas Higgins Solicitors
Ensure your business recovers what it’s owed in a timely manner with Thomas Higgins Solicitors.
We can support you throughout the commercial debt recovery process, from issuing letters before action and applying for CCJs against debtors through to enforcement.
