Is there a statute of limitations on debt?
There are 2 main time limits: How long debt stays in your credit reports and how long you can
be sued for it. If you're struggling, here's what you need to know.
By Liz Pulliam Weston for MSN Money
Credit scores are plunging. Unemployment benefits are running out. Foreclosures are high. Many
Americans are, for the first time in their lives, facing bills they can't pay.
If you're among them, you need to keep in mind that little in life, including debt, is truly
permanent. Knowing something about the legal limitations on collecting and reporting debt can
help you through your crisis and allow you to get back on your feet.
There are two major types of limitations on debt that you need to know -- and that many people
The first has to do with how long debt problems can show up in your credit reports. Federal law
typically requires credit bureaus to drop negative information after seven years. The clock
usually starts ticking 180 days after the account first goes delinquent (in other words, when you
miss your first payment). There are exceptions: Bankruptcies can remain on your credit reports
for up to 10 years, and some debts, such as unpaid tax liens, can stay on your reports indefinitely.
The other curb on debt collection is the statute of limitations, which gives creditors a certain time
period -- in most states, three to six years -- in which to sue you over a debt.
In either case, you'll still owe the money, unless the debt has been forgiven or discharged in
bankruptcy court. Lenders can try to collect it forever -- and probably will -- but they can't sue
once the statute of limitations period has passed.
How long? It depends
Statutes of limitations vary widely by state and by the type of debt. States often have different
rules for oral and written contracts, as well as for so-called closed-end contracts, such as
installment loans, and open-ended contracts, which typically (but not always) include credit card
California, for example, has fairly short statutes of limitations on most debts: two years for oral
contracts and four years for written contracts, promissory notes and credit card debts. Kentucky,
by contrast, says creditors can sue over written contracts for 15 years after the last payment was
made and for five years on most other debts, including credit cards.
You can start your research at websites such as the Credit Info Center, which has a chart that
includes links to relevant state laws.
Some other key points:
The devil's in the details. Not only do states have different statutes of limitations for
different debts, but two states may treat the same debts differently. A credit card debt
might be considered an open-ended account in one state and a written contract in another.
The only way to know for sure is to check your state laws or consult an attorney.
You can inadvertently restart the clock. Generally, the statute of limitations starts
ticking from the "date of last activity" on the accounts, said Los Angeles bankruptcy
attorney Scott Bovitz. (If the account is still listed in your credit reports, the date of last
activity should be noted there.) On a credit card debt, that could be the last payment you
made or the last purchase you charged. But in some states, making a payment on an old
debt, agreeing to an extended repayment plan or even acknowledging that the debt is
yours can extend the statute of limitations or restart the clock.
A creditor may still sue you after the statute of limitations has run out. Suing or
threatening to sue you after the statute of limitations has run out violates the Fair Debt
Collection Practices Act, but that doesn't mean it doesn't happen. To prevent the creditor
from winning a judgment against you, you'll need to show up in court and point out that
the statute has expired.
The creditor may try to pick a better venue. If you sign a credit contract and move to a
state with different limits, the creditor may try to sue you in the state that has the longer
statute. If that's not the state in which you now live, you should protest, because generally
the state where you reside is the one whose statutes should apply.
Debts can still exist even if the creditor can't sue. Some people erroneously believe
that debts are erased after the statute of limitations has run out. Although the creditor's
ability to sue you has been curtailed, it can still try other methods to persuade you to pay,
including calls and letters. The debt can also be sold to another collector that can renew
efforts to get you to pay. A legitimate debt is truly gone only when it's paid or erased in
Collectors can't legally restart the seven-year clock by "re-aging" the debt (giving it
a new delinquency date) or by selling it to another agency. The Federal Trade
Commission shut down one large collection agency, Capital Acquisitions and
Management, after charging the company repeatedly had re-aged debts in its attempts to
If you can't pay a debt, you'll want to avoid saying anything that could restart the statute of
limitations, including acknowledging the bill is yours or promising to make payments.
If you're sure the debt is too old for a lawsuit, you could send the collector a letter via certified
mail, return receipt requested. The letter should state that the statute of limitations has expired
and that you want all collection efforts stopped.
Otherwise, check out the advice in "Don't ignore that debt collector" for how to handle debts and
reduce the chances of getting sued. Then read "How to not pay your bills" for advice on
prioritizing what you pay in a crisis.
Two other resources to check are Debt Collection Answers, a website of consumer advocate
Gerri Detweiler, and "Solve Your Money Troubles: Debt, Credit & Bankruptcy" by Robin
Leonard and Margaret Reiter.
If a debt collector is particularly abusive or you get sued, you may want a lawyer's help. The
National Association of Consumer Advocates can provide referrals to attorneys familiar with fair
Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several
books, most recently "Your Credit Score: Your Money & What's at Stake." Weston's award-
winning columns appear every Monday and Thursday, exclusively on MSN Money. She also
answers reader questions on the Your Money message board and helps middle-class families
cope at Building a Brighter Future.
Published July 16, 2010