Will An Unpaid Debt Ever Go Away On Its Own?

Updated: June 10, 2024 Author:

Quick Answer Unpaid debts disappear from credit reports after six years. They do not go away. They can become statute-barred, meaning the debt becomes unenforceable. Certain debts have no time limitation on when enforcement action can be taken.

    What Happens to Unpaid Debts: From Due Date to Default

    When a debt goes unpaid, interest continues to accumulate compounding the problem. Creditors have several avenues to pursue unpaid debts. They can continue to chase payment themselves, file a claim with the County Court, or pass your account to a third-party debt collection company. If legal action is taken, courts can issue a County Court Judgment (CCJ), and enforcement action can be taken to recover the monies owed. Debtors are billed for that too. Depending on where you are in the UK, debt collection processes differ. In England and Wales, legal action can involve fees for recovering a debt, including bailiff charges. 

    The type of debt determines the actions creditors can take. In all cases when bailiffs intend to enforce collection, they are required to give 7 days’ notice of their intent to visit. You’ll know they’re coming. That’s the immediate concern when a CCJ is issued. The follow-up enforcement action. In Scotland, courts issue Decrees. These aren’t enforced by bailiff action, but instead, enforcement is called Diligence. For collection of unpaid debts in Scotland, wages can be arrested, and bank accounts frozen. Debtors are issued with a ‘Charge for Payment’ from the Sheriff Court, giving them 14 days to pay or apply for time to pay.

    How Credit Scores are Impacted by Unpaid Debts

    Not all creditors report information to the Credit Reference Agencies. Most large firms do. Smaller businesses, like home improvement service companies, don’t typically report defaults. If they take legal action to recover monies owed and you lose the case, the debt becomes a public matter and will affect your credit score. That’s because the County Court Judgment (CCJ) is recorded on the Register of Judgments, Orders and Fines – a public database used by credit reference agencies to compile your credit report. These public databases of credit defaults are a large part of how credit scoring works in the UK. For the firms that voluntarily report your account management to the CRAs, negative entries are only entered after you have been given notice.

    For credit accounts that get paid monthly, like revolving credit on overdrafts and credit cards, updates are added to your credit files monthly. Missed or late payments are reported first with a number as a marker to indicate how many months overdue the account is. 1 month, 2 months, up to six months. Generally, after six months of non-payments, accounts will be marked as in default. You can work with creditors to either lower the monthly payments or arrange a payment holiday, however, they can continue to report your account as being in default because technically, you will have broken the terms of the initial agreement – to pay the bill by the due date. You can contact each CRA to have a Notice of Correction added to your credit files letting lenders know the reason, and that there is a payment plan in place. Each entry remains on your credit report for 6 years from the date of entry, and each negative entry, lowers your credit score, making it hard to get finance in the future.

    When Do Debts become Statute-Barred (Unenforceable)

    After six years, entries on your credit report disappear. The debt does not. It’s just invisible to lenders after 6 years. Rarely will it have gone away. Debts can remain enforceable for much longer. It depends on the type of debt that’s outstanding, and whether it is considered statute-barred by the Limitation Act 1980, or if an action has been taken that resets the statute-barred clock. Timescales differ depending on the debt recovery action taken. For consumer debts considered to be “simple contract debts” (which is every type of unsecured loans or credit agreements) become statute-barred after 6 years. For credit agreements regulated by the Consumer Credit Act, they can become statute-barred after six years, but, creditors can still send notices to pay, despite the debts being statute-barred. The date for when the Limitation Act clock starts will be the date a creditor took action to recover debts. These aren’t necessarily enforceable. More of an appeal to your good graces to settle unpaid debts.

    For secured debts such as mortgage shortfalls, the debt does not become statute-barred until 12 years have passed. This is for the capital owed on the mortgage. The interest payments are statute-barred after 6-years. If a CCJ has been granted, there is no time limit for enforcement or to make you bankrupt. In Scotland, Decrees remain enforceable for up to 20 years. This is the same for Council Tax arrears. Debts owed to HMRC have no time limit. Benefits overpayments (DWP) can become statute-barred after six years, however, if you are on benefits, things are complicated as the DWP can deduct money from your benefits to reclaim overpayments. If you have been sent a “notice” about a debt that you believe could be statute-barred, you can get information from The Consumer Credit sourcebook on the FCA website, and assistance from Citizens Advice

    Do I Have To Pay Statute-Barred Debts?

    Whether you need to pay unpaid debts considered to be statute-barred depends on the type of debt, and whether the debt is enforceable. You do not want to ignore a notice or demand for payment on a debt that is enforceable through legal action. Important to note is that two instances reset the clock for when the Limitation Act applies. 1) Acknowledging that you owe the debt, for example, by writing, emailing, or telephoning the creditor, or debt collector, acknowledging that you owe the money. 2) If you make any payment towards the debt. Any acknowledgment by you (or another person named on a joint credit agreement) becomes the new start date for the purposes of the Limitation Act. In practice, you need to have no communication with creditors or a debt collector acting on their behalf for six years, or 12 years in the case of secured debts. You can still have unpaid debts that are not shown on your credit report so don’t rely on those to inform you if you have debt or not. Credit reference agencies only retain information for six years from the date an entry is recorded. That’s because lenders running soft and hard credit searches are more interested in your recent financial history. Creditors may be interested in being repaid decades from the date of the initial default.