DRO and Statute Barred Debts?

Statute Barred Debts and Other Unenforceable Debts

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 periods on debts do differ: all contract claims are barred after six years but claims under deed (i.e. mortgage shortfall debts) are barred after 12 years. To add to the difficulty if a debt is acknowledged then time starts to run again.

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 obtained a 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 the limitation period 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. Where, prior to the DRO application being submitted, the Intermediary has established that limitation applies and the debtor has evidence that the debt is statute-barred, then the debtor can choose not to list it The Intermediary should be satisfied that the debt is statute barred and keep any evidence on the debtor’s file.

Debts that can be shown to be unenforceable for another reason, for example, a pre-April 2007 Consumer Credit Act regulated agreement that does not comply with the requirements on prescribed terms, can be treated in the same way. Where the court would have discretion whether or not to enforce a debt, it should not be regarded as unenforceable, e.g. a post-April 2007 CCA regulated agreement that does not comply with the requirements on prescribed terms.

If a debtor knows that they have a statute barred debt but has no information about it and it does not appear on any credit reference reports, an application can proceed without including the debt.

In any scenario where statute barred debts are not scheduled in a DRO application a note should be included in the application explaining that there are statute barred debts detailing the sum if known or explaining the quantum is unknown, or an email sent to the DRO Unit explaining this before the application is submitted.

In summary, debts barred by limitation or otherwise unenforceable do not need to be included as qualifying debts for the purposes of a DRO and if they are not listed will not count towards the £15,000 debt limit.

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

As limitation and enforceability can be such an uncertain area the general rule should be: if in doubt, list it.