If its been four or five years since you stopped making payments to a debt and you haven’t been making any payments, you may be wondering if your debt has got lost or the the debt collector has forgotten about it. This article looks at what is likely to happen.
If you have been making payments, even very small ones, to an old debt this article isn’t relevant for you – instead read Should I keep paying an old debt?
A typical example
Mr H wrote: “I stopped paying a loan in summer 2010 when I lost my job. I have a Default on my account for Sept 2010. The bank sold it to a debt collection company and stopped chasing me for the money. However I was never contacted by any debt collection agent and there is nothing showing on my credit file to do with any debt collection agents. I know in one year it will fall off my credit history altogether.
Do you think there is a chance after 5 years of a Debt Collector contacting me? What is the best thing for me to do?”
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 you then didn’t make any more payments, as Mr H didn’t. 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.
However, if a debt collector gets in contact with you before this six year period is up, they can take you to court for the debt.
Is this likely after five years?
It’s natural to think that after five years you have probably been forgotten. But unfortunately it’s quite common for people to be contacted with only a few months left before the statute barred point.
In the third quarter of 2016 there were more than a quarter of a million CCJs awarded – up more than 50% on the numbers in 2015. Many people ran into big financial problems in 2008-12 and defaulted on their debts. Some of these are now getting near to the statute barred date so they are being taken to court.
If you are contacted, can you ignore the letters?
Another reader wrote plaintively “I have just received a letter 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 – in fact months if you defend the case – but all the debt collector has to do is start court action before the statute barred point, not complete the case.
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 most cases they will, and it seems in 2016 that debt collectors are getting increasingly likely to go for CCJs as the CCJ statistics have increased sharply. So ignoring letters isn’t a good idea because you could end up with a CCJ.
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.
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 soon, whilst the old default is still on your file, I suggest you contact the debt collector yourself and pay the debt in full. If you won’t be applying until afterwards, then have a go at getting a Full and Final Settlement offer.
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, rather then “fire fight” individual debts. Although this particular old debt could potentially disappear, you should probably assume that it won’t. Have a look at these debt solution flowcharts then consider talking to StepChange about your options.