What is the Statute of Limitations on Debt?

What is the Statute of Limitations on Debt?

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The statute of limitations on debt is the amount of time creditors have the legal right to sue a consumer for payment on a bill. In most states, the statute of limitations on debt ranges from three to six years, but it can be longer depending on what type of debt you’re carrying.

This article will cover:

What is the statute of limitations on debt?

If you fail to pay a debt, creditors have the right to pursue collection of that debt. One of the methods they can turn to is suing you in court, but they only have a certain amount of time to exercise that option. That timeframe is known as the statute of limitations.

Once the statute of limitations expires, the debt becomes time-barred, meaning a debt collector can no longer sue you to collect the debt. You are still responsible for the obligation even if it becomes time-barred, and your creditor can continue to pursue collection efforts. But the extent of their methods becomes limited. For instance, they can no longer take you to court or gain access to collection efforts available through court judgments, such as wage garnishment.

Except for federal student loans, which are collectible indefinitely, statutes of limitations on debt are based on state law, as well as the category of debt. Generally, debt falls into one of the following classifications:

  • Verbal agreements. This is any debt commitment you make verbally. These agreements have nothing in writing and can be hard to enforce legally, but you should beware of making verbal agreements to debt collectors.
  • Written contracts. If you sign a commitment, you’ve made a written contract. The terms, conditions and payment details are all documented. Medical debt, utility bills, private student loans and personal loans fall into this category.
  • Promissory notes. This is a written agreement in which you promise to pay back the creditor a specific amount of money by a certain date at an established interest rate and monthly payment. Mortgages are a type of promissory note.
  • Open-ended accounts. These debts typically carry a revolving balance that you can pay down and use again. Credit cards and lines of credit fall in this category.

Can a debt be too old to collect?

Once a debt becomes time-barred, the debt collector no longer has the legal right to sue you, but that doesn't mean you’re off the hook for the debt. Creditors can continue to contact you in an attempt to collect the debt. However, they cannot sue you or access further collection efforts, such as wage garnishment.

How does the statute of limitations on debt work?

In some states, the first date of delinquency starts the clock on the statute of limitations, while other states go by the last date of activity. For example, the statute of limitations on debt in Ohio states that if you make a partial payment on an old debt, the clock restarts as of the date of the most recent payment. On the other hand, in Texas, as of Sept. 1, 2019, the law states that no action, including payment, can revive the statute of limitations on an old debt.

Your state’s attorney general office can provide you with the laws in your area.

What if you get sued after the statute of limitations expires?

It is possible to get sued even after the statute of limitations has expired on a debt. If you receive a court summons on a debt that you know is time-barred, consult an attorney right away. It is the consumer’s (or their attorney’s) responsibility to point out that the statute of limitations has expired. If you are not present in court to do so, the judge may side with your creditor and order a judgment against you.

If you receive a court summons on a time-barred debt, take these steps:

  • Request a verification notice from the debt collector, which should show the date of the last payment.
  • Contact your attorney general's office to inquire about laws regarding the statute of limitations in your state.
  • Consult an attorney or legal aid lawyer.
  • Prepare to show the judge proof the debt is time-barred.

Is your debt within the statute of limitations?

It can be hard to find out if a debt is within the statute of limitations, especially if it has expired or if it’s been handled by multiple collection agencies. First, confirm that the bill is yours by asking the creditor or debt collector for verification of the debt. This is often done by sending a debt validation letter. This is simply a letter that asks the creditor to provide details about the debt. It requires things like the creditor’s information, the account number, the amount and how old the debt is.

Additionally, your credit reports may show a history of activity on the account, including when the last payment was made. You can request one free credit report annually from each of the three major credit bureaus at AnnualCreditReport.com. If you are unable to determine if a debt is within the statute of limitations, it may be best to consult an attorney.

How to pay off old debts

If you have old debts that are beyond the statute of limitations, consider your options before taking action. Remember, the debt collector can no longer sue you. If you do make a payment of any kind, you may be restarting the clock, depending on your state’s laws. Here are your options:

  • Pay it off. You can choose to pay off a debt that’s beyond the statute of limitations. This choice is more of a moral decision than a legal requirement since the creditor can no longer sue you. If you wish to satisfy the debt, try to negotiate the amount of the debt down.
  • Pay it partially. Beware that making a partial payment on a debt that is past due may restart the clock. Some creditors go by the date of last activity, which means you’ll be reviving an old debt. If you do plan to pay the debt, it’s best to pay it off completely.
  • Do nothing. Knowing that a collector cannot do anything beyond pursuing their own collection efforts, you can choose not to pay it at all.

So, if you are sued by someone attempting to collect a debt, make sure to check the statute of limitations and consult with an attorney. You may have more options than you think.

Justin is a Sr. Research Analyst at ValuePenguin, focusing on small business lending. He was a corporate strategy associate at IBM.