The Debt Collection Statute of Limitations

Each state has a statute of limitations in effect that limits consumers’ legal liability for old debts. Because this is a state statute rather than a federal one, the statute of limitations for debt collection will vary depending on an individual’s state of residence. When the statute of limitations expires on a debt, that debt is commonly referred to as a ”time-barred debt”.

If a creditor attempts to sue you for an old debt, citing an expired statute of limitations as your defense will often result in the lawsuit being dismissed by the court.

Time-Barred Debts and Lawsuits

Individuals often mistakenly believe that the debt collection statute of limitations disposes of their old debts after a certain length of time. This is not the case. If a consumer accrues a debt, he owes it until it is paid off. The statute of limitations merely places a legal limit on the amount of time a creditor has to collect the debt through a lawsuit.

This, however, does not mean that a creditor cannot attempt to sue a debtor over a time-barred debt. It simply means that the creditor cannot legally collect from its lawsuit should the court be aware of the expired statute. A creditor can win a lawsuit and force a debtor to pay a time-barred debt if the debtor does not make the expired statute of limitations known to the court.

The Reporting Period vs. The Statute of Limitations

A common mistake consumers often make regarding the statute of limitations for debt collection is confusing this time period with the federal reporting period for debts. The federal reporting period is the length of time that any account may remain on a consumer’s credit report before it is removed. The reporting period is regulated by the Fair Credit Reporting Act and is set at seven years for most types of debt. The reporting period for a debt will almost always be longer than the amount of time a creditor has to collect the debt via a lawsuit.

An individual’s state of residence is not the only element that determines the length of time a creditor has to file a lawsuit. The type of debt the individual owes is also a factor. The statute of limitations for credit card debt in Arizona, for example, is only three years. Should an individual default on a loan in Arizona, however, the statute of limitations jumps to six years. Both of these debts, however, would appear on a consumer’s credit report for seven years before being removed by the credit bureaus.

Resetting the Statute of Limitations

Unfortunately, the statute of limitations is not set in stone. Should a consumer make a payment to the creditor, the statute will automatically reset. In some states, the statute can be reset merely by promising to make a payment.

The statute of limitations does not begin until 180 days after an individual’s last payment on the debt. Making a new payment, no matter how small, can essentially ”reactivate” an old debt. Some unscrupulous creditors will use manipulation to trick debtors into making a small payment on an old debt. Once a new payment has been made, the creditor then has the legal right to take the debtor to court for the remaining balance.

If you have an old debt that you are concerned about being sued over, check with your state attorney general’s office to find out what the statute of limitations for debt collection is in your state. Compare the time frame you are given with how long you have owed the debt. You may be pleasantly surprised to discover that the debt you owe is no longer legally enforceable.