Statute of Limitations on Credit Card Debt

Statute of Limitations on Credit Card Debt

There are statutes of limitations on credit card debt in every state in the United States. These laws set time limits on debt collection lawsuits. The statutory periods vary from state to state. Statutes also treat different types of debt differently. Most statutes of limitations categorize debts as open accounts, written contracts, oral agreements, and promissory notes.

So what are the differences between these kinds of debts?

Open Accounts Credit extended by a business to a consumer that allows them to charge up to a certain limit, such as credit cards

Written Contracts A written agreement between that obligates one party to pay another party for goods or services.

Oral Agreements A verbal agreement where one person agrees to pay another person a certain amount of money under some agreed upon terms.

Promissory Notes A formal promise to pay a specific amount of money back under specific terms.

There isn't space in this article to cover all of the various state statutes in detail. You should look up your state's laws on the state website. The statutes of limitations states place on debts range from three years to fifteen years on some types of debts.

The statutes of limitations on debts won't affect you if you're in good financial shape and paying your debts on time. However, the statute of limitations on credit card debt affect you if you have old unpaid debts or if you are unable to keep up with your payments due to a financial hardship.

There are also a couple of Federal laws you should be familiar with when dealing with a creditor or collection agency trying to get you to pay them. The first one is the Fair Debt Collection Practices Act. It covers the collection of debts by third parties such as collection agencies and attorneys. Debt collectors are allowed to contact you by phone and by mail to attempt to get you to pay them. This law lays out the rules about what collectors can and can't do when they contact you and several other rules. It also says that if you tell a collector to cease contact with you and you put it in writing, they can't contact you again. This fits into the statutes of limitations in that if you cut off their ability to communicate with you directly the only recourse they have to collect the debt is through the courts. That is, as long as the debt is still within the statute of limitations for your state.

The other law you should be familiar with that also relates to statutes of limitations is the Fair Credit Reporting Act. This law says how long negative information may remain on your credit report for most things, seven years. Where you live and how old your unpaid debts are affects how the Fair Credit Reporting Act and the statute of limitations interact. For example, if your state has a very short statute of limitations, it can expire on your debts before they fall off your credit report. Conversely if you live in a state where the statute of limitations is fifteen years, you could still be sued by a creditor even though the account is no longer listed on your credit report.

When the statute of limitations has passed for your state, the debt is considered "time-barred." This means you are not supposed to be sued for those debts. That's the theory anyway. In the real world, there are collectors out there who will file suits on time-barred debts in the hope that the debtor will not try to defend the suit and they will win a default judgment. It's an unethical practice but they get away with it because the majority of debtors never even show up in court.

So if you have old unpaid debts that are time-barred and you send a letter to the company trying to collect on them, what can they do?

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