Statute of Limitations

Did you know that there’s a ‘statute of limitation’ on collecting various types of debt? That means that creditors only have a certain amount of time in which they can legally sue you in court to collect on a debt.

Statutes of limitations vary from state to state, and are based on the kind of debt in question.  For example, statutes of limitations are different for credit card accounts than for mortgages, and auto loans. Credit cards are generally considered ‘Open Accounts’ but in some states they are considered ‘Written Contracts like auto loans which are installment agreements.

The clock usually starts ticking on the statute of limitations on the date you become delinquent. So for example, if you live in Arizona, and became delinquent on a credit card in January 2001, and there was no further activity on that account, the statute of limitations on that account expired in January of 2006.

The State of Limitations only covers lawsuits and does not cover other types of collection activities -- Creditors or collection agencies may still continue to try to collect on your debt but are subject to the provisions of the Fair Debt Collection Practices Act.  In reality most creditors will put less effort into collecting debts that are out of statute. But creditors may still report your delinquency to the credit reporting agencies for the time limits specified in the Fair Credit Reporting Act, or seven years for the credit card debt.

If you need to know the statute of limitations for your state, contact your state’s Attorney General’s office by phone or on the Internet. Some states apply the law of the foreign state to credit cards; some apply the law of the state of the resident; while others apply what ever the credit card agreement states.

Keep in mind that if there has already been a lawsuit resulting in a judgment against you, there is a different time limit for collecting that judgment. And many states allow judgments to be renewed one or more times, which extends the enforceability of a judgment. This means you risk a permanent legal obligation until the credit card debt is paid in full.

It’s wise to have proof of the running of the statute. One way to prove when the statute runs is to get a copy of your credit report. It will list the dates as reported by your creditor, which makes solid proof if you are hauled into court by a creditor.

Next: Negotiating With Collectors