If you’re struggling with debt, there’s some good news. As time passes, your old bills can lose some of their power to hurt you, in part, because of your state’s statute of limitations laws. Let’s learn more.
Table of Contents:
- Statutes of limitations vs. credit reporting
- How statutes of limitations can help
- How statutes of limitations work
- Statute of limitations for medical debts
- State-by-state guide for statutes of limitations
- Not all debt has a statute of limitation
Statutes of limitations vs. credit reporting
Let’s be clear. Your debts will not go away unless you pay them off, no matter how much time passes. That being said, time can help protect you from the effects of your debt in two distinct ways.
- Credit reporting: After seven years (10 years for bankruptcies and up to 15 years for income tax debt), your creditors will no longer report your debt to credit agencies. Unreported debt can’t pull down your credit score.
- Statute of limitations: Each state sets a time limit during which your creditors can sue you for non-payment. After this time limit expires, you’re no longer legally responsible for many kinds of debt.
These two protections — credit reporting deadlines and statutes of limitations — operate independently. This means that your debt can still appear on your credit report even after your statute of limitations has expired, assuming your state’s statute of limitations is shorter than seven years. Likewise, organizations can still sue you for a debt even after it no longer appears in your credit history if your state’s statute of limitations extends beyond seven years, as many do.
How statutes of limitations can help
Although an expired statute of limitations will not erase your debt, it can protect you from legal responsibility. This means an organization can’t successfully sue you and a judge can’t order you to repay the debt or have liens placed on your property or income to satisfy the debt.
Notice the term “successfully sued”: an organization could still serve you with a lawsuit, but you should be able to get the action dismissed by citing your state’s statute of limitations law.
Nevertheless, some debt collectors still send threatening letters after a debt’s statute has expired, hoping fear will prompt you to make a payment. It’s up to you to know and exercise your rights.
How statutes of limitations work
To understand statutes of limitations, it may help to envision a clock or the stopwatch app on your phone. When the debt stopwatch reaches the time limit set by your state (these limits vary from three to 15 years), your legal responsibility for the debt expires. This seems simple enough, but here’s a more complex question: When does the stopwatch start, and can it be reset?
Starting your statute of limitations
The clock on your statute of limitations starts on the date of your last contact with the account. Your last date of contact could be:
- The date of your last payment
- The date you last spoke on the phone with the creditor
- The date of a letter or email you sent to the creditor
- The date you chatted online with a customer service rep on the creditor’s website
You get the idea.
A more complicated start date
Sometimes, though, the clock starts on the due date of your first missed payment, assuming you haven’t been in contact with the debtor since that date. For example, if you owed $2,500 to a credit card company and failed to make the payment due on Oct. 1, 2017, the clock on your debt starts then, even if you made a payment on Sept. 1, 2017. This distinction can seem trivial at first, but it could impact your statute of limitations.
Making a payment can reset your statute’s clock
Let’s say you’ve ignored a $2,500 credit card debt for two years. Then, you receive a letter threatening legal action if you don’t pay the entire balance. You can’t afford to pay the entire $2,500 plus interest and fees, but you do have a couple of hundred dollars you can spare, so you send it in hoping it’ll cool off the collector’s pursuit of your debt.
This is an admirable gesture, but the downside is that making this payment will restart the statute of limitations on your debt. This means that you’ve just given your creditors two more years to pursue legal action, and you haven’t come close to paying off the debt. Furthermore, even starting a conversation with your creditor about your debt resets your statute of limitations. Therefore, before contacting your creditors, be prepared to satisfy the debt, either by repaying the balance in full or by getting a debt settlement in writing from your creditors.
Statute of limitations for medical debts
Not all kinds of debt are subject to the same statute of limitations timelines, and medical debt works differently than mortgage or credit card debt.
Debt falls into four categories, and each category can have a different time limit depending on your state’s laws:
- Oral: If you buy a friend’s car for $1,500 and, during a brief conversation, agree to pay $500 a month for three months, you’ve made an oral agreement.
- Written: Medical bills are common forms of written debt. Any time you sign an agreement to pay, whether you’re writing on a paper napkin, a notarized legal document, or an iPad in the emergency room, you’ve taken on written debt.
- Promissory: Agreeing to make monthly payments with interest until a specified date in the future qualifies as a promissory agreement. Mortgages and car loans fall into this category.
- Revolving: Debts that can last and continue to change indefinitely, like credit cards or lines of credit, constitute a revolving or open-ended debt.
Your state’s laws will list a statute of limitations for each of these debt categories, and each state’s statute can vary widely. In Kentucky, for example, you’re legally responsible for credit card debt for five years, but you’re legally responsible for a mortgage for 15 years. A few hundred miles away in South Carolina, debt categories do not extend beyond three years.
State-by-state guide for statutes of limitations
Here’s a state-by-state list of statutes for each kind of debt:
*Georgia law specifies a six-year statute of limitations for credit card debt; other kinds of revolving debt have a four-year statute.
^Prior to 2012, all categories of debt in Ohio had a 15-year statute of limitations, and this law still applies to debt incurred in 2012 or earlier.
Not all debt has a statute of limitation
A statute of limitations does not apply to all kinds of debt. Here are some common exclusions:
- Federal student loans: You can be held legally responsible for this debt for the rest of your life. Private student loans typically fall into the category of written debt.
- Income tax: The IRS can always hold you responsible for past-due taxes. From the IRS’s point of view, you’re holding onto their money.
- Child support: Your legal responsibility to pay court-ordered or legally arbitrated child support payments does not expire.
If you have specific questions, you should contact a lawyer or debt counselor in your state. Here are some general questions that are asked regularly:
What state laws apply: The bank’s home state or mine?
What a great question. Sadly, there’s no ironclad answer. In most cases, the state you live in, or at least the state you lived in when you took on the debt, takes precedence over the laws of the bank’s home state.
However, your creditor can sue you in either state. If your state’s statute is shorter than the bank’s statute, the bank may try to sue you in its state of operation. It would be up to you to defend yourself by asking the judge to use your state’s laws instead.
Can you pay a debt after the statute expires?
Most definitely. After all, even after the statute expires, you still owe the money. However, remember that partial payment can restart your statute, making you legally responsible for the debt again.
Can creditors still contact me after my statute expires?
Creditors can continue seeking repayment from you even after the statute of limitations expires. They can threaten legal action and can even file lawsuits. However, you could most likely get the lawsuit dismissed using the statute of limitation as a defense.
Why is old debt still on my credit report?
Mississippi and Delaware, for example, have short statutes: just three years for each kind of debt. However, the debt remains on your credit report for seven years, so it could still hurt your credit score even though a judge can’t legally order you to pay it. Credit reporting rules and statutes of limitations operate independently.
What about medical financing options?
In most cases, medical debt qualifies as written debt, and your state’s statute for written debt will apply. But if you finance a medical procedure using Care Credit or another medical credit card, you incur open-ended or revolving debt, which often has a longer statute of limitations.
Bottom line: Statutes help protect but not forgive
The statute of limitation on your debt can help protect you from legal responsibility, but these laws will not erase your debt. Your creditors can continue seeking repayment. It’s up to you to know your legal responsibility for your debt.
Disclaimer: This story was originally published on September 30, 2019, on BetterCreditBlog.org. For more information on the statute of limitations on debt please visit: https://www.consumerfinance.gov/ask-cfpb/what-is-a-statute-of-limitations-on-a-debt-en-1389/.