Time-Barred Debts: When Collectors Cannot Sue You for Unpaid Debts
After a period of time, creditors lose the right to sue you for unpaid debts.
If you have old, unpaid debts, you may be safe from a lawsuit to collect the debt. This is because a creditor or debt collector has a limited number of years to sue you for an unpaid debt. This time period is set by state law and is called the statute of limitations.
The time allowed varies greatly from state to state and for different kinds of debts. Under certain circumstances, this time period can be restarted. So be very careful when talking to debt collectors about old debts. If you say the wrong thing, you could extend the time the creditor has to sue you for the debt.
When Are Debts Time-Barred?
To determine if your debt is time-barred – that is, too old for a creditor or collector to sue you for it – you must do some legwork.
Determine what kind of debt it is. Is the debt based on a written contract, oral contract, or a promissory note (a written promise to pay money to somebody)? Is it a credit account? If so, is it open-end or closed-end credit?
| Is the Account Open- or Closed-End Credit? |
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Determining whether an account is open-end or closed-end is not always easy. Generally, if you can use the account repeatedly, it's open-end credit (also called “revolving credit”). Your payments vary depending on how much credit you have used in a certain period of time. The most common example of open-end credit is a credit card.
Closed-end credit usually involves a single transaction, such as the purchase of a house or car, and the payments are fixed in amount and number.
Many transactions fall somewhere in between open- and closed-end credit. Also, many creditors try to characterize a closed-end account as open-end, either to take advantage of a longer statute of limitations or to avoid providing the more extensive disclosures required for closed-end credit.
The statute of limitations for open- and closed-end accounts is often different. To complicate matters even more, the statute of limitations for an open-ended account is not always clear. Some states have a special statute of limitations for credit card accounts. Others apply the statute of limitations for written or oral contracts to open-end credit.
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