Complete Guide to the Statute of Limitations on Debt

a scale, clock, magnify glass, and marker illustrates the components to understand the statute of limitations pertaining to debt.

Have you ever wondered what would happen if you didn’t pay your debts?

At first, the consequences are straightforward; your creditor may report your delinquent debt to the credit bureaus, leaving a mark on your credit report and affecting your credit score.

If you continue to miss payments, your creditor may deem your loan “bad” and may sell your debt to a collections agency. From there, it’s a terror of phone calls, letters, and the looming threat of a lawsuit.

However, this terror does not last forever. Consumers’ debts come with an expiration date known as a statute of limitations that limits the timeframe collectors can pursue legal actions against you. Knowing these timeframes can help you determine your best course of action when dealing with creditors and debt collectors.

Learn more about Debt Settlement as a solution to your debt problems.

What is the Statute of Limitations on Debt?

The statute of limitations on debt is the number of times creditors or collection agencies can legally sue you for payments on a debt. These time frames vary by state and range from 3 to 10 years.

However, once the statute of limitations has been reached, the debt does not disappear; you are still responsible for repaying all of the money you owe. This also means that debt collectors can still contact you via phone calls, emails, and letters.

Related Article: What is a Charged-Off Debt?

How Does it Work?

Once your debt has passed the statute of limitations, the debt becomes “time-barred.” The Fair Debt Collection Practices Act prohibits collectors from both suing consumers and threatening lawsuits over time-barred debts. However, they do retain the right to pursue repayment in other legal ways.

Time-barred debts remain on your credit report until the credit reporting time limit has passed. This limit, set by the Fair Credit Reporting Act, is the maximum amount of time that delinquent debts can be included in your credit report. It does not have an influence on the debt’s statute of limitations.

Most debts have a credit reporting limit of seven years. If your credit limit passes the statute of limitations on your debt, the delinquent charge will still be visible to creditors and may have a negative effect on your credit score.

Types of Debt

The statute of limitations groups debts into four categories:

  • Oral agreements
  • Written contracts
  • Promissory notes
  • Open-ended Accounts

Oral agreements are loans issued verbally with no written contract. These can be difficult to prove in court but can be proven with enough evidence.

Written contracts are debts that are written and signed by you and your lender. These contracts must contain the terms and conditions of the loan.

Promissory notes are similar to written contracts but include more specific details that you, the borrower, promise to uphold. This can include monthly payment amounts, interest rates, and length of the loan.

Open-ended accounts are loans with a revolving balance that you can borrow from and repay over and over. This can include credit card debt and lines of credit with lenders.

Loan Types That Do Not Have a Statute of Limitation

There are very few types of debt that do not have a statute of limitations. These include:

  • Federal student loans
  • Some private loans
  • Child support in some states
  • Income taxes

The statute of limitation vary by the type of debt, where you live, and the laws named in your credit agreement.  If you are sued for any of these debts, you cannot use the statute of limitations as a defense in your case.

Have more specific questions about your debt? Give us a quick call and we can answer your questions for free!

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How Long Can a Debt Collector Legally Pursue Old Debt?

The statute of limitations for your debt is based on the category your debt falls into and the laws of the state in which you were sued.

It is not uncommon for debt collectors to play the system. If you’ve recently moved to a state that has a longer statute of limitations, collectors may try to sue you and use your current residence’s statute of limitations laws as a defense.

To avoid this, make sure you are aware of the statute of limitations laws in your state.

More Resources: What to Do if Debt Collectors Won’t Stop Calling You

Can You Still Be Sued After the Statute of Limitations Expires?

Debt collectors may still seek legal actions even if your debt is time-barred. If they win the case, the court may order your paychecks to be garnished until the debt has been repaid.

There are several ways collectors may try to win the case:

  • They may dispute when the statute of limitations clock began
  • They may argue that the statute of limitations does not apply
  • They may try to apply the longer statute of limitations of your current state rather than the debt’s state of origin

If you are sued, be prepared to present the correct information to the court. This includes the correct state of the debt’s origin, the statute of limitations for the debt type, and the last date of activity on the account.

Remember, it is up to you to keep track of the correct dates of your debts. Come to court as prepared as possible, and reach out to a lawyer if you have any specific questions about the laws in your state.

How Does the Statute of Limitations Affect Your Credit?

To allow your debt to reach the statute of limitations, your account must be inactive for several years. However, not taking any actions towards your debt can have a drastic effect on your credit.

When you miss a debt payment, your creditor has the right to report your delinquency to the credit bureaus after 30 days. This will leave a negative mark on your credit report for seven years. This mark will both lower your credit score and indicate to creditors that you have trouble handling debts.

Remember, the statute of limitations is not the same as the credit limit report. If your state’s statute of limitations is 3 years, your time-barred debt will remain a delinquent debt on your credit report for 4 more years.

To avoid harming your credit, it is in your best interest to avoid waiting until the statute of limitations expires. Continuously making your monthly payments will prevent debt collectors from calling, interest from mounting, and your debt from growing.

Do I Still Have to Pay?

Although your debt comes with both a statute of limitations and a credit report time limit, you should still plan on paying. Even if your debt becomes time-barred, you are still responsible for paying it off.

Not making payments can have a drastically negative effect on your financial well-being. The longer you wait to make payments, the more you may be charged in interest and late fees.

If you haven’t made payments in a while or are struggling to make payments, there are options available to help make your debts more manageable. These include:

If you choose to stop making debt payments, your collectors will continue to try to contact you. To stop these communications, the Fair Debt Collection Practices Act permits you to send the collections agency a “cease and desist” letter. Once they receive the letter, the collections agency has a final chance to contact you and inform you of their next steps of action.

Need to know which debt solution is right for you? Have a quick, free conversation with us today so we can point you in the right direction!

Restarting Your Statute of Limitations Countdown

One of the dangers of waiting for the Statute of Limitations to expire is restarting the clock. It can be done accidentally and can cost you years of waiting and built-up interest and fees.

The statute of limitations begins on the date of the last activity on your account. This includes:

  • Making payments
  • Entering a payment or settlement plan
  • Acknowledging that the debt is yours
  • Using the account

You may be able to find the date of the last activity on your account on your credit report. Be sure to check your report before contacting any collections agency or acknowledging that the debt is yours.

Need Help With Old Debts?

Remember, refusing to make payments on your debts can harm your credit, push you further into debt, and ruin your financial foundation. Be aware of the effects before you decide to wait for the debt to expire.

If you’re considering not making payments because you have too many debts or cannot afford it, contact one of our expert counselors today. We can help you find a solution that best fits your needs, and get you back on the path to financial well-being.

Article written by
Melinda Opperman
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined in 2003 and has over two decades of experience in the industry.

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