This article is NOT LEGAL ADVICE. If you have a question about a specific situation, please consult with an attorney in your state.
A statute of limitations is a state law that limits the period during which one party, such as a creditor or debt collector, may bring an action in court to enforce a contract, such as a loan agreement or note. This means a creditor may not be allowed to sue a borrower in court to force them to pay a debt after the period has expired. The time limit (or clock) usually begins when the breach of contract (or default of loan) occurs. Most states have a specific statute of limitations for loans and debts.
The statute of limitations on debt varies by state and by debt type. State statutes of limitations typically apply to private student loans.
The statute of limitations on debt isn’t a wait-it-out solution that simply erases debt once it’s been owed for a few years. There may still be consequences to failing to pay back debts once the statute of limitations has expired. For example, creditors may be able to still report the debt to credit bureaus. And statutes of limitations may not apply to some debts, including federal student loans.
Here’s what you should know about statutes of limitations and debt.
What Is The Statute of Limitations on Debt?
Essentially, a statute of limitations on debt puts a time restriction on how long a creditor or debt collector is able to sue a borrower in state court to enforce the loan agreement and force them to repay the outstanding debts. In practice, this means that if a borrower chooses not to pay a debt, after the statute of limitation runs out, the creditor or debt collector doesn’t have a legal remedy to force them to pay.
To be clear, just because the statute of limitations has expired, it doesn’t mean that the borrower no longer owes the money, even though it does mean that the lender may not be able to take them to court for non-payment. The borrower will continue to owe the money borrowed, and their non-payment could be reported to the credit bureaus, which would then remain on the report for as long as allowed under the applicable credit reporting time limit .
Statutes of limitations don’t apply to all debts. They don’t, for example, apply to federal student loans. Federal student loans that are in default may be collected through wage or tax refund garnishment without a court order.
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 isn’t always as simple as you might imagine. 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 in the contract you signed mandating that the debt is governed by a specific state’s laws.
One commonality in every state’s statutes of limitations on debt is that the “clock” does not start ticking until the borrower’s last activity on the relevant account. Let’s say, for example, that you made a payment on a credit card two years ago and then entered into a payment plan with the debt collector last year but never made any subsequent payments. In that case, 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 the account. This can make it confusing to determine if the statute of limitations has expired on your old debts, especially if you haven’t made a payment in a long time.
It may be possible to find out what the statute of limitations is by contacting the lender or debt collector and asking for verification of the debt. Remember that agreeing to make a payment, entering a payment plan, or otherwise taking any action on the account — including simply acknowledging the debt — may restart the statute of limitations.
After the statute of limitations on the debt has expired, the debt is considered time-barred.
Limitations on Debt Collection
Statutes of limitations on certain old debts may prevent creditors or debt collectors from suing you to recover what you owe. However, it’s important to realize that debt statutes of limitations don’t protect you from creditors or debt collectors 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. 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, but under the Fair Debt Collection Practices Act , debt collectors cannot sue or threaten to sue you for a time-barred debt. (Note that this act applies only to debt collectors and not to the original lenders.)
Some debt collectors, however, 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.
Disputing Time-Barred Debt With Debt Collectors
If a debt collector is contacting you to attempt to collect on a debt that you know is time-barred and you don’t intend to pay the debt, you can request that the debt collector stop contacting you.
One option is to write a letter stating that the debt is time-barred and you no longer wish to be contacted about the money owed. If you’re unsure, it may be possible to state 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, it may be necessary to repeat this process with the new collection agency.
Remember, even though a collector can’t force you to pay the debt once the statute of limitations expires, there may still be consequences for non-payment.
For one, your original creditor 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.
Limitations on Student Loan Debt
Statutes of limitations don’t apply to federal student loan debt. If you default on your federal student loan, your wages or tax refunds may be garnished.
One option in managing your student loans is consolidating or refinancing them in order to decrease your loan term or secure a more competitive interest rate.
Borrowers who hold only federal student loans may be able to consolidate them with the federal government to simplify their payments.
Borrowers with a combination of both private and federal student loans might consider student loan refinancing as one option to get a new interest rate and/or a new term. Depending on an individual’s financial circumstances, refinancing can potentially result in a lower monthly payment (though it may also mean paying more in interest over the life of the loan).
All borrowers with federal loans should keep in mind that refinancing federal loans can mean relinquishing certain benefits, like forbearance and income-based repayment options.
Statutes of limitations on debt create limits for how long debt collectors are able to sue borrowers in a court of law. These limits vary by state but are often between three to 10 or more years. Once the statute of limitations on a debt has expired, the debt is considered time-barred. However, any action the borrower takes on the account has the potential to restart the statute of limitations clock.
Statutes of limitations apply to private student loans. Statutes of limitations don’t apply to federal student loan debt, but if a federal student loan isn’t paid back, the borrower may have their wages garnished.
If you’re having trouble repaying your student loans, you may want to consider refinancing. Though, again, there are factors such as the loss of the federal student loan benefits to keep in mind when deciding whether it’s a good idea to refinance.
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