Drain the “toxic lake”

Giving UK taxpayers a “statutory amnesty” could help drain the “swamp of toxic debt”, a QC has suggested.

Writing in NLJ this week, Peter Thompson QC says the toxic assets that started the global recession in 2008 included not only sub-prime mortgages but also sub-prime loans in the form of unsecured loan facilities provided by credit cards.

He identifies a “toxic lake” of £325bn sitting in the individual budgets of millions of debtors who borrowed more than they could pay. Now the bailout has squeezed the poison from the banking system, he asks, can anything be done to “ease the burden” of the individual taxpaying debtor?

Thompson says the answer could lie in s 5 of the Limitation Act 1980, which provides “statutory amnesty for contract debts after six years’ of non-payment”. 

“Six years is not very long,” he writes, “but look out for the trap in s 29: the six-year period starts again whenever the debt is acknowledged in writing or a payment is made. 

“So keeping the wolf from the door by occasional morsels of payment actually ensures that it never goes away. The better course is complete inactivity or, more excitingly, going on the attack and denying liability.”

The debtor can also benefit from the Consumer Credit Act 1974, by requesting documents relating to the debt, and the Protection from Harassment Act 1977, which prevents debt-collectors from acting in an intimidating manner, he says. He adds that the increase in court fees may discourage creditors from starting legal proceedings.