Every debt has a statute of limitations that determines how long creditors have to sue you for collection. Once this period expires, the debt becomes time-barred, meaning creditors cannot use the courts to force you to pay. Understanding statutes of limitations on debt can be a powerful defense against old debts and helps you make informed decisions about whether and how to respond to collection attempts. The limitations period varies significantly by state and type of debt, making it essential to know the specific rules that apply to your situation.
How Statutes of Limitations Work
A statute of limitations sets the maximum time after an event during which legal proceedings may be initiated. For debts, this clock typically starts running when you default, meaning when you miss a payment and do not cure the default. The limitations period does not eliminate the debt itself; it only prevents creditors from successfully suing you to collect.
Time-barred debts can still appear on your credit report for up to seven years from the date of first delinquency, separate from the lawsuit limitations period. Creditors can still contact you about time-barred debts, though they cannot threaten to sue if the statute has run. Understanding this distinction helps you evaluate collection attempts on old debts.
Determining Which State's Law Applies
When the debtor and creditor are in different states, determining which state's statute of limitations applies can be complicated. Some credit agreements specify which state's law governs. Courts may apply the law of the state where the contract was formed, where the debtor resides, or where the lawsuit is filed.
Creditors sometimes file in states with longer limitations periods to maximize their time to sue. If you are sued in a different state than where you live, the applicable limitations period may be contested. An attorney can help analyze which state's law should apply and whether the statute has run under the appropriate legal standard.
Types of Debt and Limitations Periods
Different types of debt may have different limitations periods in the same state. Written contracts, including most credit cards and loans with signed agreements, typically have longer limitations periods than oral agreements. Open-ended accounts like credit cards may be treated differently than installment loans with fixed payment schedules.
Promissory notes, which are formal written promises to pay, often have their own limitations period. Judgments, if a creditor has already sued and won, have separate and often longer limitations periods that restart when the judgment is entered. Understanding what type of debt you have determines which limitations period applies.
Actions That Reset the Clock
Be cautious about actions that can restart the statute of limitations, giving creditors more time to sue. In many states, making a payment on an old debt restarts the limitations period. Written acknowledgment of the debt or a promise to pay may also reset the clock.
Debt collectors sometimes try to trick consumers into making small payments or acknowledging debts specifically to restart the limitations period. Before making any payment on old debt or signing anything acknowledging you owe it, understand whether this will give creditors new ability to sue. Consulting with an attorney before taking action on old debts helps avoid inadvertently extending your exposure.
Using Statute of Limitations as a Defense
If you are sued on a time-barred debt, the statute of limitations is an affirmative defense you must raise in your answer to the lawsuit. The court will not apply this defense automatically; if you do not raise it, you can still lose even if the limitations period has expired.
Your answer to the complaint should specifically assert that the claim is barred by the applicable statute of limitations. Be prepared to show when the debt became delinquent and that the limitations period has run. If you can prove the lawsuit was filed too late, the case should be dismissed regardless of whether you actually owe the money.
When Collectors Contact You About Old Debts
Receiving collection calls or letters about old debts does not mean the statute of limitations has not run. Collectors often pursue time-barred debts hoping consumers do not know their rights. Request validation of the debt in writing and ask when the last payment was made to determine if the debt is time-barred.
You can inform collectors in writing that the debt is time-barred and demand they cease contact. If collectors threaten to sue on debt they know is time-barred, this may violate the Fair Debt Collection Practices Act. Document all communications in case you need evidence of violations. Knowing your rights regarding old debts helps you respond appropriately to collection attempts.
Time-Barred Debt and Credit Reporting
The statute of limitations for lawsuits is separate from credit reporting time limits. Most negative information can remain on your credit report for seven years from the date of first delinquency, regardless of whether the statute of limitations for lawsuits has expired. Paying a time-barred debt does not remove it from your credit report faster.
If a time-barred debt is being reported beyond the seven-year period, you can dispute it with the credit bureaus. However, if the debt is within the seven-year reporting period but beyond the lawsuit limitations period, it can legally remain on your report even though the creditor cannot sue you. Understanding these separate timelines helps you make informed decisions about old debts.
Practical Considerations
Whether to pay a time-barred debt is a personal decision involving multiple factors. Creditors cannot sue you successfully for time-barred debt, but the debt may still affect your credit and your conscience. Some people prefer to pay old debts for ethical reasons or to rebuild relationships with creditors, while others reasonably decline to pay debts that are legally unenforceable.
If you choose to pay or settle a time-barred debt, negotiate carefully and get written confirmation that the debt is fully resolved. Be aware that payment may have tax implications, as forgiven debt over $600 may be reported as income. Consulting with an attorney or financial advisor helps you understand all implications before making decisions about old debts.