In an age where credit is frequently used to purchase everything from a pack of gum to a family home, it’s easy for debt to get out of control. Even the most financially responsible person can fall on hard times that prevent them from keeping up with their payments, that’s when the collection calls, letters and threats of legal action begin. Fortunately for those who are in debt and overwhelmed by these tactics, there is a time limit for debtors to take legal action. In this post, we’ll explain just what the statute of limitations on credit card debt is and how the statute may apply to your other debts too.
The Statute of Limitations on Debt
The statute of limitations on debt refers to the amount of time a debt collector has to sue over an outstanding debt. The idea of the statute is to protect debtors from claims to unpaid bills without sufficient evidence. Until this time period ends, debt collectors can use multiple methods to try to obtain the money owed. This includes wage garnishment, phone calls, mailing and court action.
What Happens When the Statute Runs Out?
When it runs out, debt collectors can no longer bring a debtor to court to recover the money owed. But even though legal action is off the table, it doesn’t mean the collector can’t use other methods to get their payment. The debt still exists at this point, and borrowers can always pay it off if they so choose.
When the legal time period ends for certain past debts or missed payments, they will also be wiped off your credit report. Since lenders often use credit reports to determine the reliability and worthiness of a potential applicant, having these negative marks removed can increase your chances of qualifying for a loan in the future. The disappearance of any missed payments or outstanding debts off your credit report can also boost your score, another perk. This usually occurs in seven years, regardless of which state you reside in.
Does It Apply to All Debts?
No. It’s important to note that not all debts have a finite period for legal action. Federal debts (such as federal student loans) have no statute of limitations, and debtors can be sued for not paying these debts at any time, even decades later.
What If a Debt Collector Contacts Me After the Statute Has Expired?
If a debt collector has contacted you and you suspect that time has run out on your debt, it’s important to proceed carefully. If you acknowledge the debt, you’ve revived it and renew the possibility of legal action. This is exactly what debt collectors want, so be careful if you choose to respond to their phone calls or letters.
Another point to remember: The debt can still be listed on your credit report after reaching the statute of limitations. It may not get erased until it passes the seven-year mark. For example, the Massachusetts statute of limitations for debt is six years, meaning that the debt will still show up on your credit report for a year before the credit bureau erases it.
Some debt collectors are open to debt negotiation and will settle for a smaller repayment amount after the statute has expired. After all, it’s more profitable for a collection agency to settle for a portion of the debt owed than to write it off as a complete loss.
Contacting a lawyer, personal finance expert or debt consultant can help you find the best route to take when you’re dealing with outstanding debt. Whether you choose to file for bankruptcy before the statute of limitations expires or allow the debt to get erased from your credit report, a credit consultancy company can help you find the best solution for your personal finances. Our qualified Fresh Start team can provide expert guidance for dealing with debt collectors, settling your debt and becoming financially free. Call us at 800-346-9559 today.
Statute of Limitations on Credit Card Debt by State
|New Hampshire||3 years|
|New Jersey||6 years|
|New Mexico||4 years|
|New York||6 years|
|North Carolina||3 years|
|North Dakota||6 years|
|Rhode Island||10 years|
|South Carolina||3 years|
|South Dakota||6 years|
|West Virginia||10 years|