If you still get calls about a debt you stopped paying years ago, you may wonder if there is a statute of limitations, a time when bill collectors need to stop harassing you and to let down. You may also be concerned about the impact of unpaid debts on your credit report. Here we will sort the responses.
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Is there a statute of limitations on the debt?
Yes, each state has its own debt statute of limitations. The length of time a creditor or debt collector has to take legal action against you varies depending on the type of debt. Once the statute of limitations has expired, the creditor cannot sue you and cannot use the court to collect your money under any circumstances. This includes judgments, liens and wage garnishments. No matter what a debt collector says, he or she has no power outside of the statute of limitations.
What about your credit report?
Negative marks may remain on your credit report after the statute of limitations expires. Credit bureaus have their own rules about how long negative events stay on your report, and don’t care if the debt is legally expired.
Something to keep in mind: To convince you to pay, a debt collector may promise to remove negative remarks from your credit history. As beautiful as it sounds, it is not always possible. Credit bureaus discourage deleting negative remarks, claiming it makes credit reports less accurate.
Can a debt collector still call?
Just because the statute of limitations has expired, does not mean debt collectors should stop calling. A collection representative can contact you about an old debt because, technically, you still owe it. Yet a collector has little power once the statute of limitations has expired.
Types of debt
Debt breaks down into several types. To understand how long the statute of limitations lasts in your state, you need to know the type of debt you carry.
Like a handshake agreement, a verbal agreement occurs when you borrow money and agree to repay it, but don’t have a written contract. While it is unlikely that a company will make a verbal agreement with you, it is possible to have a verbal agreement with a family member or friend.
Unlike an oral agreement, a written contract puts the details of a loan agreement on paper. This includes the names of both parties, the amount borrowed, interest charged, when payments are due and what happens if payments are not made. Once the lender and the borrower sign a written contract, it is legally binding. Auto loans are an example of a written contract. And, if you agree in writing to repay a debt, that is also a written contract. A written agreement does not have to be recorded on a formal document. It can be scribbled on a napkin in a restaurant or on the back of an envelope. As long as both parties have signed the agreement, it is eligible.
Promise of debt
The difference between a promissory note and a written contract is that a promissory note tends to be less detailed than a written contract. You always promise to return the money. A mortgage is considered a promissory note because it only needs to be signed by you as the borrower to be enforceable.
Debt of indefinite duration
Revolving accounts such as a store credit card or line of credit are considered open. This is because you can keep these accounts open as long as you are making regular payments. There is also no fixed date by which the balance must be paid in full.
Credit card debt
Although both are considered unsecured debt, states treat major credit card debt differently than they treat store debt, and the statute of limitations tends to be different.
If someone sues you for non-payment of any of these types of debt and gets a judgment, there is an additional statute of limitations for the judgment in most states, ranging from three to 20 years.
Key facts to remember
Here are four quick facts about the statute of limitations you should know:
- Debts expire at different times, depending on the state.
- Depending on the type of debt, the statute of limitations may be related to where the debt was created, rather than the state you live in. Major credit cards are a prime example. When you buy a card, you sign a contract. Buried in the mountain of fine print is a statement about the state’s jurisdictional laws that apply in the event of a problem between you and the credit card issuer.
- The limitation period is generally calculated from the last date of activity on the account. Let’s say a credit card goes two years unpaid, but you make a payment after two years. The statute of limitations clock starts again.
- Even if the statute of limitations has expired, negative information can remain on your credit report for seven years or more.
Debt statute of limitations by state (in years)
Knowing the debt statute of limitations is not about playing with the system. It’s about understanding when you are legally released and knowing when a debt collector is lying about the legal right to sue.