Statute of Limitations Makes Some Debt Uncollectible
- December 6, 2024
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Your debt may be uncollectible.
Debt, like a credit cards and unsecured personal loans can become uncollectible after several years due to the statute of limitations.
What is the statute of limitations on debt?
Each state has a law called a “statute of limitations” that sets a time limit for creditors to sue you for unpaid debt.
The timeframe varies by state and type of debt, but for credit card debt, it’s typically 3 to 10 years.
What it means when debt is “time-barred” by the Statute of Limitations
Once the statute of limitations expires, the debt is considered “time-barred” and creditors can no longer sue you to collect.
But this doesn’t mean the debt is no longer owed. The original creditor or a debt collectors might still try to contact you about time-barred debt. But do not make any payments, as this could restart the clock on the statute of limitations.
Can uncollectible debt remain on credit reports
Yes. Uncollectible debt just means you can no longer be sued by the creditor or debt collector. However, the debt can still severely damage your credit scores.
That’s because the Fair Credit Reporting Act (FCRA) allows negative credit to report up to 7 years in your credit files, that’s a different type of statute of limitations.
Types of debt that can become uncollectible
The most common types of unsecured debt that become uncollectible:
- Credit cards
- Medical bills that are not covered by insurance
- Unpaid utility bills like electricity, gas, and water
- Outstanding balances on store credit cards or charge accounts
- Payday loans
- Private student loans -Unlike federal student loans, private student loans typically have a statute of limitations.
When does the statute of limitations begin
The statute of limitations typically begins to run when you first breach the credit card or loan agreement and no attempts are made to remedy the past due payments. Here is an example:
1. You made a payment on an account on June 10, 2020 and no further payments have been made since that date. July of 2020 becomes your first date of delinquency (DOFD).
2. Let’s say you live in California where the statute of limitations is 4 years on “open-ended accounts.”
3. Now add 4 years to the July 10, 2020.
4. The statute of limitations runs July 10, 2024. The creditor or debt collector can no longer sue you for this debt even though they can continue trying to collect on the debt.
Can the statute of limitations be reset?
Under certain circumstances the statute of limitations can be reset:
Acknowledging the Debt: Acknowledging the debt in writing can restart the statute of limitations. Be careful about sending letters or emails where you admit to owing the debt.
Making a Payment: Making even a small payment toward the loan will reset the clock, giving the lender another four or six years to sue.
Agreeing to a New Payment Plan: Signing a new repayment agreement resets the statute of limitations and starts a new contract.
If you’re struggling with debt, it’s crucial to understand your rights and options. Consider seeking advice from a reputable credit counseling agency or financial advisor.
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