Time-Barred Debts: When Creditors and Collectors Can't Sue You for Unpaid Debts

If you have old, unpaid debts, you might be safe from lawsuits to collect them. Creditors and debt collectors have a limited number of years to sue you for outstanding debts. This time limit is called the "statute of limitations."

The time allowed varies significantly from state to state, and for different kinds of debts. Written contracts, oral contracts, promissory notes, and open-ended accounts (like credit cards) can all have different statutes of limitations.

However, under specific circumstances, the statute of limitations can restart. 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 it.

When Does the Statute of Limitations Period Start?

The time limit for a particular statute of limitations starts to run from the time the agreement is breached. Usually, that means:

• when you stop making payments
• if insurance lapses on collateral, or
• some other significant act or omission occurs that puts the ball back in the creditor's court to enforce the agreement.

Statutes of Limitations for Various Types of Debts

The amount of time a creditor has to sue you depends on the type of debt you have and your state's laws.

Written Contracts

Many states categorize the following as "written contracts" for the purpose of the statute of limitations:

• promissory notes
• credit card agreements (with exceptions), or
• other written loan agreements.

Whatever your state's law sets as a statute of limitations for written contracts will usually apply to a written credit agreement with your creditor.

Oral Agreements

If you made a promise to pay but didn't put it in writing, or if a creditor claims that you owe money based on an oral agreement, then most states will apply a different statute of limitations.

The statutes of limitations for oral agreements are either shorter than the time limit for written contracts (most states) or the same time limit (other states).

Open Accounts (Credit Cards)

Some states distinguish credit cards from standard "written contracts" and instead classify them as open-ended or revolving accounts. In those cases, the statute of limitations might be different, usually shorter than the time limits for written contracts.

However, some states give creditors (especially credit card companies) the option of treating the credit account as a written contract, thus extending the statute of limitations even further.

Installment Contracts

A different statute of limitations might apply if you enter into an installment payment agreement directly with a retailer. A retail installment agreement is different from a credit card in that the creditor is the store that sold you the goods, as opposed to a third-party bank financing your purchase.

You pay the purchase price directly to the seller over time. Usually, the statute of limitations, if applicable, is much shorter than the time limit for written contracts.

Mortgage Foreclosure

The period within which a mortgage lender can foreclose on your home might be different than the period for other written contracts.

Finding the Applicable Statute of Limitations

State law sets the statutes of limitations. They usually range from about three to ten years depending on the type of debt.

To find out the statute of limitations for debts in your state, you can:

• check Nolo's 50-state chart
• consult a lawyer, or
• research your state laws by going to a local law library, contacting your state consumer protection agency, or doing legal research on the internet.

Some Debt Collectors Try to Enforce Time-Barred Debts

Aggressive debt collectors sometimes try to enforce debts even when the statute of limitations has passed. They buy these debts from original creditors for pennies on the dollar, so they make a profit if they collect anything.

A Creditor Might Sue You Even After the Statute of Limitations Period Has Run

Just because the statute of limitations has expired doesn't mean a creditor or collector won't sue you. They might file a collection lawsuit after the limitations period has passed, hoping you won't notice that the statute of limitations has expired and won't raise it as a defense to the suit.

You'll have to raise the statute of limitations as a defense if you get sued. If you don't, the creditor may be able to get a judgment against you on an otherwise unenforceable debt.

Also, be aware that an expired statute of limitations usually doesn't eliminate the debt; it merely limits the judicial remedies available to the creditor or collection agency after a specific time. A debt collector may still seek voluntary payment of an old debt even though they can't use a lawsuit to force you to pay it.

A Collector Might Use Other Aggressive Tactics

Some debt buyers use aggressive tactics when trying to collect time-barred debts. They harass debtors and might even try to trick debtors into reaffirming debts so that the statute of limitations begins anew.

What Should You Do if a Collector Tries to Collect a Time-Barred Debt?