Most of us are paying off debt. Whether it is student loans, a personal loan, credit cards, or even a house, responsibly managing debt is one of the most important parts of maintaining financial health. Sometimes, however, debt can get away from us.
If you haven’t made a payment on certain kinds of old debt in a very long time, your debt may be outside of the statute of limitations. If the statute of limitations has expired on your debt, the lender or debt collector can no longer take you to court to attempt to recover the money you owe.
For example, pretend you opened a credit account during your freshman year in college in 2004. You charged $1,000 total but only made one payment of $100 on December 31, 2004. If the applicable statute of limitations on credit card debt in your state is five years, your debt may be time-barred (which just means debt you didn’t repay before the five years passed) because there hasn’t been any activity on your account for more than five years. This means that the lending company or debt collection agency cannot take legal action against you to force you to pay the $1,000 back.
The statute of limitations on debt is not a catch-all solution for all old money owed, however. There may still be consequences to failing to pay back time-barred debts, even when the statute of limitations has run out. And some debts, like student loans, are not subject to statutes of limitations. Here are the major differences to know.
Statute of Limitations on Debt
A statute of limitations on debt is a time limit on how long a debt collector is allowed to sue you in court to force you to pay off any outstanding money you owe them. It is important to know about the statutes of limitations on any of your outstanding debts. If you have a very old debt that you haven’t made payments on in a long time, lenders or creditors may no longer be able to force you to pay the debt in court.
In practice, this means that if you choose not to pay the debt, the collector does not have a legal remedy to force you to pay. Just because a debt is outside the statute of limitations doesn’t mean that you no longer owe the money that you borrowed, but it does mean that the lender may not be able to take you to court for non-payment.
You continue to owe the money you borrowed, and your non-payment may continue to be reported on your credit report for as long as allowed under the applicable credit reporting time limit . Some debts, like student loans, are exempt from the statute of limitations on debt. A debt collector can always attempt to sue you in court to repay federal student loans, no matter how much time has passed since you last had activity on your account.
How Long Until a Debt Expires?
The length of the statute of limitations is determined by state law. State statutes of limitations on debt vary from three years to more than 10 years , depending on the type of debt.
Figuring out exactly which state’s laws your debt falls under can be more difficult than just figuring out what type of debt you owe and looking up the statute of limitations for the state in which you live. The applicable statute of limitations may be determined by the state you live in, the state you lived in when you first took on the debt, or even the state where the lender or debt collector is located. The lender may even have included a clause mandating that the debt is governed by a specific state’s laws in the contract you signed.
One commonality among every state’s statute of limitations on debt is that the “clock” does not start ticking until your last activity on the applicable account. That means that if, for example, you made a payment on a credit card two years ago, then entered into a payment plan with the debt collector last year—but never made any subsequent payments—the statute of limitations clock would start on the date that you entered into the payment plan.
In this example, simply entering into a payment plan counts as “activity” on your account. This can make it confusing to determine if the statute of limitations has expired on your old debts, even if you haven’t made a payment in a long time.
You may be able to find out what the statute of limitations is by contacting the lender or debt collector and asking for verification of the debt. Remember, however, that agreeing to make a payment, enter a payment plan, or otherwise taking any activity on the account—including simply acknowledging the debt—may restart the statute of limitations.
Limitations on Debt Collection
Although statutes of limitations on certain old debts may keep collectors from suing you to recover what you owe, debt statute of limitations don’t protect you from creditors continuing to attempt to collect payments on the time-barred debt. Remember, you still owe that money whether or not the debt is time-barred by a statute of limitations. The statute of limitations merely prevents a lender or debt collector from pursuing legal action against you indefinitely.
Debt collectors may continue to contact you about your debt for a time, but under the Fair Debt Collection Practices Act , debt collectors cannot sue or threaten to sue you for a time-barred debt.
Some debt collectors, however, still may still try to take you to court on a time-barred debt. If you receive notice of a lawsuit about a debt you believe is time-barred, you may wish to consult with an attorney about your legal rights and resolution strategies.
If a debt collector is contacting you to attempt to collect on a debt that you know is outside of the applicable statute of limitations and you don’t intend to pay the debt, you can request that the debt collector stop contacting you.
You may choose to write a letter stating that the debt is time-barred and that you no longer wish to be contacted about the money owed—or, if you’re unsure, that you would like to dispute the debt and want verification that the debt is not time-barred. If the debt is sold to another debt collector, you may have to repeat this process with the new collection agency.
Remember, just because a collector can’t force you to pay the debt once the statute of limitations expires, there may still be consequences for non-payment. Creditors may continue to contact you through the mail and by phone.
Additionally, most unpaid debts can be listed on your credit report for seven years, which may negatively affect your credit score. That means that failing to pay a debt may impact your ability to buy a car, rent a house, or take out new credit cards, even if that debt is time-barred by the statute of limitations.
Limitations on Student Loan Debt
Student loans are not subject to debt statutes of limitations. That means that lenders or debt collectors are not time-barred from suing you in court to collect the money you owe, no matter how long ago you stopped paying on the student loan debt.
One solution to managing your student loans is consolidating or refinancing them in order to decrease the number of monthly payments you have to make or save money on interest.
If you only have federal student loans, you may be able to consolidate them with the federal government to simplify your payments—and that ensures you keep the protections that come with federal student loans, like forbearance and income-based repayment options.
If you have both private and federal student loans, however, refinancing your student loans may be a worthwhile option to get a new interest rate and/or a new term. Depending on your situation, refinancing can lower your monthly payment or help you pay less overall—so you spend less time paying off your debt.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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