Have you ever wondered what would happen if you didn’t pay your debts?
At first, the consequences are straightforward, your creditor may report your delinquent debt to the credit bureaus, leaving a mark on your credit report and affecting your credit score.
If you continue to miss payments, your creditor may deem your loan “bad” and may sell your debt to a collections agency. From there, it’s a terror of phone calls, letters, and the looming threat of a lawsuit.
However, this terror does not last forever. Consumers’ debts come with an expiration date known as a statute of limitations that limits the timeframe collectors can pursue legal actions against you. Knowing these timeframes can help you determine your best course of action when dealing with creditors and debt collectors.
The statute of limitations on debt is the number of time creditors or collection agencies can legally sue you for payments on a debt. These time frames vary by state and range from 3 to 10 years.
However, once the statute of limitations has been reached, the debt does not disappear, you are still responsible for repaying all of the money you owe. This also means that debt collectors can still contact you via phone calls, emails, and letters.
Once your debt has passed the statute of limitations, the debt becomes “time-barred.” The Fair Debt Collection Practices Act prohibits collectors from both suing consumers and threatening lawsuits over time-barred debts. However, they do retain the right to pursue repayment in other legal ways.
Time-barred debts remain on your credit report until the credit reporting time limit has passed. This limit, set by the Fair Credit Reporting Act, is the maximum amount of time that delinquent debts can be included in your credit report. It does not have an influence on the debt’s statute of limitations.
Most debts have a credit reporting limit of seven years. If your credit limit is passed the statute of limitations on your debt, the delinquent charge will still be visible to creditors and may have a negative effect on your credit score.
The statute of limitations groups debts into four categories:
Oral agreements are loans issued verbally with no written contracts. These can be difficult to prove in court but can be proven with enough evidence.
Written contracts are debts that are written and signed by you and your lender. These contracts must contain the terms and conditions of the loan.
Promissory notes are similar to written contracts but include more specific details that you, the borrower, promises to uphold. This can include monthly payment amounts, interest rates, and length of the loan.
Open-ended accounts are loans with a revolving balance that you can borrow from and repay over and over. This can include credit card debt and lines of credit with lenders.
There are very few types of debt that do not have a statute of limitations. These include:
The statute of limitation vary by the type of debt, where you live, and the laws named in your credit agreement. If you are sued for any of these debts, you cannot use the statute of limitations as a defense in your case.
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