Statute barred debts by HC12071618102

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									Statute barred debts -DRO Unit Guidance

This issue of statue barred debts is not at all straight forward and limitation on debt is a
complex area of law, however advice has been obtained regarding whether statute barred
debts need to be scheduled in a DRO application.

Section 251B of the Insolvency Act 1986 states the following:

251B Making of application

(2) The application must include—

(a) a list of the debts to which the debtor is subject at the date of the application, specifying
the amount of each debt (including any interest, penalty or other sum that has become
payable in relation to that debt on or before that date) and the creditor to whom it is owed;

However, Section 251A (2) (a) of the IA 1986 states that a qualifying debt means a debt that
is for a liquidated sum payable immediately or at some certain future time.

If a debt is indeed statute barred then it is neither “payable immediately or at some certain
future time”.

Firstly to clarify, limitation on debts does differ, all contract claims (and therefore most debts)
are barred after six years but claims under deed (i.e. mortgage loan debts) are barred after
12 years. To add to the difficulty if a debt is acknowledged then limitation starts to run
(again).

In simple terms money could be lent in 2012 which the debtor agrees to pay over three
years. They fall behind with payments, but in 2014 agree they still owe the money. Limitation
on this debt is six years from 2014, not 2012.

It is correct to say that limitation, effectively, does not apply against a debt upon which
judgment has been obtained. If the creditor has previously taken a debtor to court and have
obtained a County Court Judgment, the debtor will be unable to use the Limitations Act 1980
to dispute the debt. If the judgment is over 6 years old the creditor may need the permission
of the Court to enforce the debt.

It is also correct that a ‘debt’ exists beyond limitation but the creditor can lose any right to
enforce the debt by virtue of limitation.

Due to the uncertainty of limitation, the first principle must be that all unpaid debts should be
listed in the application for a DRO; this is so even if the debtor considers that they may be
able to rely upon a defence of limitation against enforcement of that debt. Only where, prior
to the DRO application being submitted, limitation has been independently established and
the debtor has an acknowledgment or certainty that the debt was statute-barred prior to the
date of the application then the debt should not be listed.

Where the official receiver subsequently discovers that a debt was not statute-barred and, as
a consequence, at the date of the DRO application the debts exceeded £15,000 the DRO
will be revoked.

As limitation on debts can be such an uncertain process the rule of thumb should be if in
doubt, list it.

								
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