Statute Of Limitations On Debt

The statute of limitations on debt collection is typically 3 – 6 years, though its length can vary by state and type of debt. Once the statute of limitations expires, a creditor can no longer sue to collect a debt. This makes understanding the statute of limitations important, especially if you have outstanding debt or have creditors trying to collect on your debt. Depending on your specific situation and when the debt was incurred, you may not be legally obligated to repay the debt, though it may still harm your credit.

What Is The Statute Of Limitations On Debt And How Does It Work?

The statute of limitations on debt is a legal time limit. It determines how long creditors have to sue debtors to collect unpaid debts. The statute of limitations can vary by location as well as the type of debt that is incurred. As one example, if I have an oral debt in Ohio, the creditor has 6 years to collect on the debt. But if it's a written debt, the statute of limitations is 8 years, and if it's a promissory debt, it's 15 years. Other states have the same statute of limitations for all forms of debt — in Massachusetts, the statute of debt is 6 years no matter what kind of debt it is.

The purpose of the statute of limitations is to protect debtors from continued lawsuits and liability for the debt. As time goes on, it may become harder and harder for someone to argue that they are not responsible for this debt. Information may become harder or impossible to find, and potential witnesses may no longer be available. For these and other reasons, states have set up the statute of limitations on credit card debt and other debt to protect borrowers.

When Does The Clock Start On The Statute Of Limitations?

In most cases, the statute of limitations on debt starts on the date of the last activity on your account. In many cases, this is the date where you last made a purchase or payment on your account. However, the statute can also reset if you have other activity. This can include communicating or interacting with a debt collector and acknowledging the debt or making partial payments. It's important to understand what can reset the statute of limitations and avoid those activities on older debt.

Understanding Time-Barred Debt

The statute of limitations prevents creditors from filing lawsuits to collect old, ineligible debts. However, a creditor may still file a lawsuit to collect on debt that is past the statute of limitations. In that scenario, you or your attorney can file to have the lawsuit thrown out of court due to the passing of the statute of limitations. That's why it's important to understand the statute of limitations for any debt that you might have.

It's also important to realize that ignoring a time-barred debt can still have negative consequences. Even if you are protected from a credit company suing you to collect on the debt, the creditor may (and likely will) report the lack of payment to the major credit bureaus. This can have a significant negative impact on your credit score. You'll want to consider the potential consequences of neglecting time-barred debt.

Types Of Debt

The statute of limitations by state for debt collection varies. One way is by state, county or other jurisdiction where the debt is incurred. Another way the statute of limitations varies is by the type of debt.

Oral Contracts

An oral contract is \a debt agreement made without any sort of written documentation. Instead, the debt may be characterized by only oral agreements or witness testimony. Generally, the statute of limitations on oral contracts is lower than that of other types of debt.

Written Contracts

A written contract is a type of debt that has a written agreement, usually signed by both parties. In many cases, the written contract lists out the details of the debt, including the amount, interest rates, repayment terms and possible consequences for failure to repay the debt. These written contracts may or may not be notarized or recorded.

Promissory Notes

A promissory note is a type of written contract that sets out a debt repayment plan in a specific payment at a specific interest rate by a specific date. Student loans and mortgages are two types of loans that usually include promissory notes. In contrast to other forms of written contracts, promissory notes are often (but not always) notarized and recorded with the county or state.

Open-Ended Contracts

An open-ended contract is a type of debt where you have regular access to a particular amount of money, over time. Usually with an open-ended contract, you can continue to use the account as long as you make regular payments. Credit cards and lines of credit are two forms of open-ended contracts.

Statute Of Limitations On Debt Collection By State

In addition to varying by the type of debt, the statute of limitations also varies by state and county. It's important to know the statute of limitations where you live and where the creditor operates. Here is a table showing the statute of limitations in each state, by type of debt: 

**Please consult your state’s laws as these may change after time of publishing.

How To Manage Debt Past The Statute Of Limitations

Regardless of whether your debt is past the statute of limitations, you'll want to be aware of it and have a plan to manage it. One option is to check out our best tips and strategies for managing debt. One good strategy to start managing your debt is to list out all of your debts. Being aware of the scope of your debts can be the start to reducing and even eliminating your debt. The debt snowball and debt avalanche methods are two popular ways that people use to eliminate their debt.

Another option to address time-barred debts is debt settlement. Depending on the amount of your debt, your ability to pay and how long the debt has been outstanding, the creditor may be willing to take less than the face value of the debt. Keep in mind, however, that a debt settlement may negatively impact your credit score.

It's very important to keep records of your debts to make sure that you are managing your debt in a financially stable manner. Along those lines, you should regularly review and monitor your debts to avoid default or falling into a debt cycle.

The Bottom Line

Most debts have a statute of limitations, after which the creditor can no longer sue to collect the debt. The statute of limitations varies both by the state or jurisdiction where the debt is incurred as well as by the type of debt it is. It's important to regularly review and manage your existing debts. Have a plan in place to understand your current debts, and how you can work towards reducing or eliminating your debts.

If you want help managing your debts, one thing that you can do is sign up for the Rocket Money℠ app today to get a view of all your debts and spending in one place.