(Legal Disclaimer: The information provided herein is for informational purposes only and is not intended as a substitute for professional advice.).
Your debt may be uncollectible. Your State’s Statute of Limitations governs the amount of time a creditor or collection agency can sue you for a debt. After the statute of limitations expires the original creditor or the collection agency cannot bring a lawsuit against you for the debt.
This does not mean a creditor or debt collector cannot attempt to collect the debt. It just means you cannot be taken to court or sued after the statute of limitations has expired.
Do not get the Statute of Limitations (SOL) confused with FCRA reporting rules and how long negative information will stay on your credit reports. Even though you cannot be sued for debt after the SOL has expired, the debt can still be on your credit report.
Some debt collectors will file a lawsuit anyway
There has been no shortage of rogue debt collectors trying to enforce debts that are time-barred by the statute of limitations. These time-barred debts are purchased from the original creditors for pennies on the dollar, making them a cash cow for debt collectors who choose to ignore the statute of limitations.
While the courts will allow a debt collector to file a lawsuit that is past the statute of limitations, you have a defense against the lawsuit. If the creditor has waited too long to sue you, you must raise the statute of limitations as a defense in the papers you file in response to the lawsuit.
If you can prove that the debt is older than the statute of limitations, then you will not have to pay it and it will be dismissed. The number one action you must take is to respond to the lawsuit and assert your rights under the statute of limitations.
If you do not respond…and the debt collector is hoping you don't – then they can get a default judgment against you. The bottom line is — if sued for a time-barred debt, the statute of limitations can only protect you if you defend yourself in court.
How to Calculate the Statute of Limitations
To calculate the statute of limitations start with the date you made your last payment (no other payments have been made on that account since then). For example:
- You made a payment on an account in June 10, 2016 and no further payments have been made. July 10, 2016 becomes your first date of delinquency (DOFD).
- Let's say you live in California where the statute of limitations is 4 years on “open-ended accounts.”
- Now add 4 years to the July 10, 2016.
- The statute of limitations runs July 10, 2020. The creditor or collection agency can no longer sue you for this debt.
What if you have moved to another State
If you incurred a debt in one state but moved to another state, the statute of limitations may not be the same for each state. In this case, the creditor or collection agency can choose to use the state with the longer statute.
Re-Starting the Statute of Limitations Date
The statute of limitations can be restarted, even if has expired, in some states simply by making a payment on the old debt, acknowledging you owe the debt or making a written promise to pay the debt. Your strongest weapon against a debt collector is an expired statute of limitations.
Debt collectors are hoping you are not aware of this when they contact you about an expired debt. Do not get on the telephone with a collection agency, deal in written communication only. Always send the letter via certified mail, return receipt. Be sure to state in the letter “this is not an acknowledgment of the debt and the statute of limitations has expired!”
Credit Reporting Agencies and Negative Marks
According to the FCRA negative marks can remain in your credit files for 7 years, after which time the negative mark and any related collection account must be deleted. The length of time starts from the time you were late and no other payments were made plus 180 days after the missed payment.
This becomes the FCRA Compliance Date. This date does not change, even if an account is sold or transferred to a collection agency. After 7.5 years, even if left unpaid, the negative account must be removed by the original creditor and whatever collection agency that may be currently reporting in your credit files.
Some collection agencies will fraudulently update their reporting status in order to keep the account active thereby extending the time the account appears on your report. If this occurs dispute it with the credit reporting agencies and they have to honor the original 7.5 year reporting date.
Changing the FCRA Compliance Date is a serious violation, both the debt collector and the credit bureau could be sued.
State Statutes vs. Credit Reporting Agencies
Once the 7-year mark has been reached negative entries will drop off your credit report. This is not the same as your state's statute of limitations on debt. Even though a debt may no longer legally appear on your credit reports after 7 years, you could still be sued for the debt if the statute of limitations in your state has not expired.
Be careful when Contacting Old Creditors
Some states have a provision that extends the statute of limitations if you make a payment on an old debt or acknowledge that you owe the debt. A good faith effort to pay or settle an old debt may turn into a huge negative mark on your credit report which could potentially be reported for another seven years. Always negotiate deletions when paying old debts and get everything in writing.
Should you pay an old debt
To pay or not to pay? There are some instances when paying a time-barred debt is necessary. For instance, if you want to purchase a house you will have to pay that debt or the mortgage lender may not approve your application for a loan.
Paying a debt that is within the statute of limitations
In instances that a creditor or debt collector is threatening to sue for a debt that is within the statute of limitations you may want to negotiate a settlement. If you don’t resolve the debt and are successfully sued, the creditor or debt collector will obtain a judgment against you.
A judgment can remain on your credit file for 7 years and will seriously damage your credit score. Plus, if you are considering purchasing a home, a mortgage lender will require a judgment be satisfied before approving you for a mortgage loan. A good strategy for negotiating a settlement is to offer less than the full amount.
Make sure to request a settlement agreement in writing along with agreeing to cease all further contact and pursuit of a lawsuit. Also request that your credit reports be updated to show that the debt has been paid in full.
Finding your State's Statute of Limitations on Debt?
Each State has it's own Statute of Limitations on Debt. Certain debts do not have a Statute of Limitations such as Student Loans, Income Taxes and Child Support. Keep in mind State Statutes can and do change so it is imperative to look at your State's Statutes to ensure the accuracy.