If its been several years since you stopped paying a debt and you haven’t had any phone calls or letters for a long while, you may be hoping your debt has “got lost”. Perhaps the debt collector has forgotten about it…
Mr H has a typical situation:
I stopped paying a loan at the start of 2016 when I lost my job. I have a Default on my credit file for June 2017. The bank sold it to a debt collector after a couple of years. But I was never contacted by the debt collector. I know in 2023 it will fall off my credit history altogether.
Do you think there is a chance after 5 years of a Debt Collector contacting me this year or next year? What is the best thing for me to do?
This article looks at what may happen.
The problem for Mr H is that debt collectors are taking more people to court for CCJs than they used to. In the first quarter of 2023, there were more that 250,000 CCJs – up more than 14% on the same quarter in 2022 (statistics from the Registry Trust).
And debt collectors often wait for years before they do this. So not having heard from a creditor for several years doesn’t mean that they have forgotten about you or decided to clear your debt.
If you have been making debt payments, even very small ones, this article isn’t relevant for you – instead read Should I keep paying an old debt?
Becoming “statute barred”
When a debt is statute barred, the creditor won’t be able to get a County Court Judgment (CCJ) for the debt. In general a debt becomes statute barred six years after you missed a payment if the creditor had “the right to start court action” at that point. But if you made any payments during that six year period, the 6 years would start again.
I’ve written another post that looks in details at questions people ask about statute barred debt because it can be complicated for different types of debt.
Mr H hasn’t been making any payments. But if a debt collector gets in contact with him before this six-year period is up, they can still take him to court for the debt and he would get a CCJ.
It’s natural for Mr H to think that after five years he has probably been forgotten… but it’s common for people to be contacted by a debt collector with only a few months left before that statute barred point.
If you are contacted, can you ignore the letters?
Another reader wrote
I have just received a letter from a debt collector threatening court action. My debt will be statute barred in December, only 6 weeks away, surely I can tough it out until then? It must take a few weeks to get a CCJ?
It does take a few weeks to get a CCJ – indeed it will be months if you defend the case. But debt collector only has to start court action before the statute barred point, not complete the case before then.
Also you have to be absolutely sure your debt will be statute barred. In 2019 court case has made it more difficult for some loans and credit cards to become statute barred. And it can be difficult to tell when an overdraft is time barred.
If you ignore the letters there is a chance the debt collector won’t go to court. This probably depends on how certain the debt collector is that you are the debtor.
But in many cases they will go to court if you don’t respond to them.
And debt collectors are taking more people to court about small debts than they used to. A half of all CCJs are for less than £800 and many are for only a couple of hundred pounds.
So ignoring letters isn’t a good idea because you could end up with a CCJ.
If you get one headed Letter Before Action (or sometimes Letter Before Claim or Letter Before Court), then this is your last chance to make a monthly agreement to pay the debt and not get a CCJ.
It is also the point at which you can ask for more information about the debt – sometimes the debt collector doesn’t have the right documentation to get a CCJ! For some debts the creditor has to be able to produce the CCA agreement for the debt and if they can’t the debt is unenforceable and they should not go to court at all.
Read How to reply to a letter before action which suggests how to complete the Reply Form that you have been sent.
What happens to your credit file
When a default date has been added to a debt on your credit file, the whole debt will disappear after six years. This is going to happen whatever you – or a debt collector – does.
If the debt collector suddenly springs into life you are likely to see them add the debt to your credit record under their name with the same default date as the original record does. If the debt collector “makes a mistake” with this and uses a later date, you should get the default date corrected.
But if you get a CCJ, this is then added to your credit record and will remain for another six years. A CCJ is worse for your credit score than a default is.
Have you moved?
If you have moved and not informed the creditors of your new address, then it’s possible the letters are going to your old address…
In this case the letters could turn into court papers and you could end up with a CCJ without knowing about it. That is actually more likely that the debt just being forgotten and going statute barred.
And annoyingly although the creditor didn’t seem to know where you were for the CCJ court papers, as soon as there is a CCJ they then seem able to find you and get it added to your credit record.
So what is the best thing to do?
That depends on your financial situation. Here are a few cases:
Much improved, hoping to get a mortgage
This old debt needs to be sorted, the last thing you want if you are making a mortgage application is the possibility of getting a CCJ.
If you want to get a mortgage, I suggest you contact the debt collector yourself and settle the debt – this could be a full and final settlement offer.
Wanting a mortgage, you do not want to make a monthly payment arrangement, because then a mortgage lender will see the payments from your bank statements even when the debt has dropped off your record.
OK, could start clearing this debt
I suggest you work out how much you could pay each month and start saving this amount up in a separate account, where you won’t be tempted to dip into it. If the debt collector contacts you, you then have an amount you could offer in a full and final settlement.
If time goes on, the debt drops off your credit file and you are sure it is well over six years since you made a payment, then read up about statute barring. At some point you will feel comfortable to use the little nest egg you have saved for something else.
Not good, could only afford a token monthly payment
In this case there isn’t anything sensible you can do now except wait. If the debt collector does contact you, don’t ignore the letter but offer a token payment and give details of your income and expenditure, showing why you can’t afford any more.
Dreadful, lots of other problem debts as well
You need to look at your whole situation, not just firefight individual debts. Although this particular old debt could potentially disappear, it’s best to assume that it won’t. Have a look at this overview of possible debt options.