I settled with a creditor on an old debt, and then stopped making payments again. Does the statute of limitations prevent the creditor from suing me for the unpaid debt?
That depends on the laws of your state. The statute of limitations varies by state and by the type of debt. It sets a time limit that a creditor or collector can bring a lawsuit for payment of an unpaid debt. In some states, the statute of limitations is four years for a credit card agreement, in others it's longer or shorter. And the time period might be different for different types of debts. To find out the statute of limitation rules in your state, and to learn more about the statute of limitation, visit our Statute of Limitations & Debt Collections topic area.
When Does the Statute of Limitations Time Period Start?
Normally, the clock starts ticking from the time you default on your agreement with the creditor.
Example. If you defaulted, or stopped paying, on a credit card in September 2004 and you live in Ohio where the statute of limitations for credit card debt is six years. The creditor has until September 2010 to file a lawsuit against you -- that is, six years from the date you stopped making payments.
If the creditor has not sued you by that time, then it probably cannot ever sue you. If it does sue you, you can raise the statute of limitations as a defense to the collection lawsuit.
Reviving the Statute of Limitations When You Settle an Old Debt
There are some exceptions to this rule, including when you settle on an old debt. In some states and in some circumstances, when you settle a debt with a creditor or collector, you revive or extend the statute of limitations period.
Example. In the previous example, if you settle with that creditor in September 2009, make payments for a year and then stop paying in September 2010, then the creditor may have an additional six years, until 2016, to sue you on that debt.
How to Protect Yourself From Future Lawsuits on Old Debts
If you sign any paperwork when you settle an old debt, read it very carefully to make sure that you also did not waive the statute of limitations. For more information, read Nolo's article What Should You Do if a Collector Tries to Collect a Time-Barred Debt?
If You Settled After The Statute of Limitations Expired
If a debt collector tried to collect the old debt from you after the original statute of limitations had expired, but had threatened to sue you or take other legal action to pressure you into settling that debt, then it may have broken the law. That is because the Fair Debt Collection Practices Act prohibits debt collectors from threatening legal action on a time-barred debt. If the debt collector lied to you about the age of the debt and whether it had expired under the statute of limitations, then it may have also violated the FDCPA. For more information, read Nolo's article Illegal Debt Collection Practices.