Money Tips: What You Need To Know About The Statute Of Limitations On Debts
The statute of limitations, as it applies to debts, is the period of time that creditors have to successfully sue a borrower for a delinquent debt. After the statute of limitations runs out on a debt, it becomes a timed-barred debt.
Can Creditors Sue if the Statute of Limitations Runs Out?
Creditors lose their right to collect for breach of contract after the statute of limitations runs out. They may still file a lawsuit, except in a handful of states, hoping that the borrower will pay, even though the borrower has a legitimate defense. The person sued must go to court and present their defense, the court will not refuse to hear the case, nor will the court bring up that the creditor is suing for breach of contract for a time-barred debt. A defendant will lose by default if he or she does not appear, even for time-barred debts. Some creditors count on borrowers not knowing their rights.
What Types of Debts Have a Statute of Limitations?
There are four types of debt where the statute of limitations applies; written contracts, oral contracts, promissory notes and revolving credit, which includes credit card debt. Federal student loans, late child support and certain taxes generally do not have a statute of limitations; an individual is responsible for these debts forever.
When Does the Statute of Limitations Begin?
The statute of limitations starts after the last activity on the account. Activity is defined as a purchase, a payment or a payment arrangement agreement. Activity can also include a simple acknowledgement of your debt. The statute of limitations varies both by the where the debtor resides and by the type of debt. For example, the statute of limitations for credit card and other revolving debt is four years in Florida, but it is five years for written contracts.
There are states where the statute of limitations is only three years on certain types of debts, while other states have a statute of limitations of up to 15 years. The average is five to six years on most types of debts.
Which State’s Statute of Limitations Applies?
For debtors who still live in the state where they opened their account and make purchases, the statute of limitations is clear. The statute of limitations is fuzzy when a consumer opens a revolving account in one state, makes all their purchases in a neighboring state, and then moves to another state. Generally, the state the debtor lived in when they opened the account will determine the statute of limitations, but there are exceptions. Credit card companies will usually try to sue a delinquent customer in the state that is the friendliest to creditors.
There are states that allow new residents to use their statute of limitations if it is shorter than the state where the debt originated. Other states suspend the statute of limitations if a borrower moves out of state, and then resumes it if the borrower returns. Anyone who is facing a lawsuit from a creditor, and he or she believes the statute of limitations should have run out, should contact an attorney who has experience in debt collection law.
Credit Bureau Reporting
The statute of limitations for past due debts has nothing to due with how long the debt remains on your credit report, which is usually between seven to 10 years. A consumer who want to purchase a house may wish to pay a time-barred debt to have the debt show on their credit report as paid.
A debt collector can call you to collect on a time-barred debt; some people want the debt. Be extremely careful when speaking to a debt collector. Any acknowledgement of the debt can start the clock over. An individual that wants to pay the debt voluntarily can usually bargain with the collector to agree on a settlement figure, usually half the cost of the total debt. Consumers should wait for a written confirmation that the amount will settle the debt in full before making a payment. This action will start the statute of limitations clock over, so it ids vital that the borrower is certain he or she can pay the negotiated amount.
What to Do if You are Hassled about a Time-Barred Debt
If a debt collector threatens to sue you for a debt where the statute of limitations has run out, he or she is in violation of the Fair Debt Collection Practices Act. If a collector does not threaten to sue, she or she still has to follow certain guidelines. For example, in Florida, a debt collector can only call you during reasonable hours, between 8 a.m. and 9 p.m. in Florida, unless you agree to different times.
The Florida Attorney General’s Office directs consumers to file a complaint with Florida’s Office of Financial Regulation or to contact the Federal Trade Commission and file a complaint online if they feel a bill collector is in violation of a debt collection regulation.