The following is provided for informational purposes only and is not intended as legal advice or credit repair.
When it comes to old, unpaid debts, there’s a bit of confusion around the term “statute of limitations.” Specifically, consumers are sometimes under the belief that taking certain actions with old, delinquent debts can prolong the amount of time those debts stay on your credit report.
Statutes of limitations can be complicated, especially as they relate to debt, so here’s what you need to know in order to make the best choices for your unique circumstances.
If you have outstanding debts, you may be wondering how long creditors can legally pursue collection on those debts. The answer depends on a few key factors, including the type of debt, the state you live in and whether any payments have been made to reset the statute of limitations.
What is the Statute of Limitations on Debt Collection?
The statute of limitations refers to the timeframe creditors have to sue you in court to collect on a debt. Once the statute of limitations expires, creditors lose the legal means to collect through the court system. However, you still owe the debt even if the statute of limitations has passed.
The statute of limitations varies by state and debt type Common statutes of limitations include
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Written Contracts – Examples include car loans, mortgages, and medical debt. Statutes range from 3 to 15 years.
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Oral Contracts – Verbal agreements between individuals. Statutes range from 2 to 10 years.
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Promissory Notes – Written promises of repayment like personal loans. Statutes range from 3 to 15 years.
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Open-Ended Accounts – Revolving credit like credit cards. Statutes range from 3 to 8 years.
When Does the Statute of Limitations Clock Start Ticking?
When the statute of limitations clock starts depends on your state’s laws. In some states, it begins when you first miss a payment. In others, it starts from the date of the last payment or account activity.
Making a payment or even acknowledging the debt in writing can reset the statute of limitations in some states. Avoid making partial payments if the statute of limitations has expired.
Strategies for Dealing with Old Debt
You have a few options when dealing with debt where the statute of limitations has expired:
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Don’t pay – The debt will continue to appear on your credit report for up to 7 years. Collectors can still contact you but can’t sue.
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Pay in full – Resolve the debt and stop collections calls. This can help your credit score if currently in delinquency.
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Settle for less – Offer a lump sum payment that is less than the full balance. Get any settlement offer in writing before paying.
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File for bankruptcy – Discharge eligible debts fully. This stays on your credit report for up to 10 years.
If considering payment or bankruptcy, consult a credit counselor or attorney regarding the best approach for your situation. Be wary of making even small payments as this can reset the statute of limitations.
Exceptions to Statute of Limitations Rules
While statute of limitations rules provide consumer protections in most cases, there are some exceptions:
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Federal student loans – No statute of limitations applies. They are rarely dischargeable in bankruptcy.
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Secured debts – Statutes don’t apply as long as the creditor still holds the secured collateral. Examples are auto loans and mortgages where the lender can repossess the vehicle or foreclose on the home.
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Child support – No statutes limit the collection of court-ordered child support.
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Debts obtained by fraud – Statutes may not apply if fraud was used in obtaining the credit.
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Government fines/fees – No statutes limit the collection of fines imposed by federal, state or local courts and agencies.
How to Check the Statute of Limitations on a Debt
To determine if the statute of limitations has expired on a debt:
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Review account records – Look for the date of your last payment or missed payment.
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Identify your state laws – Each state has different statutes based on the debt type.
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Consult a lawyer – An attorney can request documentation from the creditor and review if litigation timeframes have passed.
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Don’t reset clocks – Avoid even small payments that could restart the statute of limitations.
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Respond to lawsuits – If sued, be sure to assert the statute of limitations as a defense. Provide evidence like payment records.
Maintaining Good Credit Despite Old Debt
Even if old debts can no longer be collected through legal action, they can still hurt your credit scores and ability to get approved for new credit. Strategies to rebuild your credit over time include:
- Paying down balances on active accounts
- Becoming an authorized user on someone else’s account
- Opening new accounts and making on-time payments
- Limiting credit applications while scores are low
Paying off old collections accounts can also help, if you can afford to do so. Just be sure to get any payment offers in writing first before sending money.
Key Takeaways
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Statutes of limitations limit how long creditors can sue to collect debts in court. Expired debts remain owed but become legally uncollectible.
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Timeframes vary based on debt type, state of residence, and account history. Promissory notes often have longer statutes than open-ended accounts.
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Avoid resetting the statute of limitations clock by making payments or acknowledging expired debts in writing.
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Consult an attorney to understand your rights and timeline. Seek credit counseling if struggling with debt resolution options.
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Payment plans, settlements and bankruptcy are potential strategies for resolving old debts. Each option has pros and cons.
Knowing the statute of limitations rules in your state can provide peace of mind. Just because a creditor can’t force you to court doesn’t mean you shouldn’t eventually take care of outstanding debts impacting your credit and finances.
When does the clock start on my state’s statute of limitations?
While every state has its own laws, per the Federal Trade Commission, the “clock” generally starts at the moment you miss a payment and your account becomes delinquent. If the statute of limitations is 3 years and you missed a payment due on May 1, 2023, then by the end of the day on May 1, 2026 that debt will likely be considered “time-barred.”
Statute of limitations is only about legal responsibility
The statute of limitations on a debt ultimately dictates whether or not a creditor can sue a debtor over an unpaid debt. Once the statute of limitations on a debt has run out, the creditor loses a good deal of leverage. It does not mean, however, that they won’t continue to attempt to collect the debt.
You should think of the debts statute of limitations primarily as a potential defense. Knowing that youre beyond the period defined by your states statutes gives you a solid argument why youre no longer responsible to pay the debt in question.
How long can a creditor collect an old debt?
FAQ
Can a 10 year old debt still be collected?
In most cases, credit bureaus will no longer report a debt if it has passed seven years since the date of first delinquency, meaning that a 10-year-old debt …Nov 4, 2024
How long before a debt is uncollectible?
How long can you be chased for a debt?
The time limit is sometimes called the limitation period. For most debts, the time limit is 6 years since you last wrote to them or made a payment. The time limit is longer for mortgage debts.
What is the 777 rule with debt collectors?