⌛ Video Length — 00:08:53
Lesson Summary
Did you know that debt has an expiration date? It’s actually subject to a legal statute of limitations, which limits how long debt collector can sue to collect an unpaid balance owed to a creditor. If the debt collector waits too long, and the statute of limitations has expired, they can’t sue to collect the balance.
Now before you get too excited, there’s a few things you should know.
Most statutes of limitations fall in the three-to-six year range, but it can be as high as 10 or 15 years in some states. They vary by:
- State laws
- What type of debt you have
- Whether the state law applicable is named in your credit agreement
Debts that have passed the statute of limitations are known as time-barred debts. However, just because the debts have aged past the statute of limitations doesn’t mean that you no longer owe money or that your credit rating cannot be impacted.
It just means the creditor won’t file a judgment against you—as long as you come to court prepared with proof that your debt is too old.
Proof might include a personal check showing the last time you made a payment or your own records of communication that you’ve made about that debt, such as calls made or letters sent.
A court can also award a judgment to a creditor on time-barred debt if you don’t show up to fight it.
In some states, the statute of limitations period begins when you failed to make a required payment on a debt.
In other states it is counted from when you made your most recent payment, even if that payment was made during collection.
In some states, even a partial payment on the debt will restart the time period.
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Debt Categories
It’s important to know which type of debt you have because the time limits are different for each type. If you’re in doubt, check with your attorney about which type of debt you have. Debts fall into one of four categories.
- Oral Agreements: These are debts that were made based on a verbal agreement to pay back the money, and there is nothing in writing.
- Written Contracts: All debts that come with a contract that was signed by you and the creditor falls in the category of a written contract—even if it was written on a napkin.
- However, a written contract must include the terms and conditions of the loan. For example, the amount of the loan and the monthly payment must be included.
- Promissory Notes: A promissory note is a written agreement to pay back a debt in certain payments, at a certain interest rate, and by a certain date and time. Home loans and student loans are two examples of promissory notes.
- Open-Ended Accounts: An account with a revolving balance you can repay and then borrow again is open-ended. Credit cards, in-store credit, and lines of credit are all examples of open-ended accounts. If you can only borrow the money one time, it is not an open-ended account.
Before you respond to a debt collection, find out the debt statute of limitations for your state.
You should know… the statute of limitations have nothing to do with how long an unpaid debt stays on your credit report.
Which is why, in addition to knowing your state’s SOL, it’s important to also know the credit reporting time limit (a date that’s independent of the statute of limitations)- which is generally 7 years.
Below this video, you will find a list of SOL by state
