Statute of Limitations on Debts
Oral Contract: You agree to pay money loaned to you by someone, but this contract or agreement is verbal (i.e., no written contract, “handshake agreement”). Remember a verbal contract is legal, if tougher to prove in court.
Written Contract: You agree to pay on a loan under the terms written in a document, which you and your debtor have signed.
Promissory Note: You agree to pay on a loan via a written contract, just like the written contract. The big difference between a promissory note and a regular written contract is that the scheduled payments and interest on the loan also is spelled out in the promissory note. A mortgage is an example of a promissory note.
Open-ended Accounts: These are revolving lines of credit with varying balances. The best example is a credit card account. Please note: a credit card is ALWAYS an open account. This is established under the Truth-in-Lending Act:
“FIND YOUR STATE- STATUE OF LIMITATIONS”
All figures Are In Years.
The material provided in this table for informational purposes only
|State||Oral||Written||Promissory||Open-ended Accounts||State Statute: Open Accounts|
|CT||3||6||6||6||Chapter 926 Sec. 52-576|
|DE||3||3||3||3||Title 10 Sec.8106|
|IL||5||10||10||5 or 10***||735 ILCS 5/13-206|
|KY||5||15||15||5 or 15||413.120 & 413.090|
|OK||3||3 or 5||5||3 or 5||12-95A(1), (2)|
|PA||4||4||4||4||42 Pa. C.S.5525(a)|
Why should you care about the Statute of Limitations (SOL)?
Every day, consumers pay off collection accounts and charge-offs which they do not have to pay off because the Statute of Limitations has already expired for the open account. Consumers pay off these accounts because the accounts still appear on their credit reports.
This information can be a powerful weapon in unburdening yourself of old debts, as creditors have a limited time in which to sue you. Remember: the Statute of Limitations begins to run from the day the debt – or payment on an open-ended account – was due. Also, this has nothing to do with how long an negative credit item can remain on your credit report.
Consumers also pay off these accounts when they are not on their credit reports. Even though an account was removed from their credit file, a collector watched their credit report for any activity (actually the computer was watching any credit activity). When the collector spotted the activity, he called the consumer for payment. All the consumer needed to say to the collector was, “I have an absolute defense–the Statute of Limitations has expired.”
The Statute of Limitations does not cause your debt to go away after it expires. If the creditor files suit, the consumer has an absolute defense. The consumer must offer the new evidence to avoid a judgement. The evidence will consist of papers the consumer files to support his claim. If the creditor sues you, and you do not prove to the court that the Statute of Limitations expired, you will have a lost lawsuit and a judgment against you.
When does the Statute of Limitations start?
You might be asking yourself, “It has been such a long time since my “open account” has had any activity. When does my Statute of Limitations started ticking.”
There are various opinions on when the SOL starts:
- The first time you fail to make a payment on your account.
- The credit card company sends you a demand letter for the full amount.
Any can be true, depending on the credit card agreement. Here’s why:
The length of the statute varies from state to state and depends on the type of agreement, i.e. oral, written, etc. The one aspect of a statute of limitations that is pretty constant throughout all of US states’ laws is when it begins to run.
A statute of limitations, or limitations of action statute, begins to run when a cause of action accrues. In plain English, that means the statute begins to run when you have done something contrary to the terms of your agreement for which you can be sued. Most of the time, that “something” is failure to pay your bill. When you don�t make your payment on time, you have violated the terms of your agreement and you have given the creditor a cause of action.
Some credit agreements include an acceleration clause which must be invoked before a creditor has a cause of action. The acceleration clause could be activated by the creditor sending you a demand for payment in full by a certain date. In these instances, you must fail to pay the creditor after it has invoked the acceleration clause before the creditor has a cause of action, and the statute of limitations starts to run. You need to become familiar with the terms and conditions of your specific agreement to know for sure which event triggers a cause of action and thus, begins the running of the statute of limitations.
In any case, if the creditor fails to sue you in the time allowed by the applicable statute of limitations, you have an affirmative defense against the creditor’s claim which can serve as a bar to recovery of the delinquent debt.
Calculating When the Statute of Limitations (SOL) is Over
- Take the date cause of action begins (date of last payment or demand letter):
- Add the number of years of the statute of limitations in your state.
Example: You last stopped paying on a credit card on Jan 15, 2001. The company sent you a demand letter for the full amount on July 15, 2001. The statute of limitations for credit cards (usually regarded as open accounts) in your state is 6 years.
The date at which you are “safe” from having a creditor sue you over this debt is:
No Acceleration clause: Jan 15, 2001 + 6 years = January 15, 2007
Acceleration clause: July 15, 2001 + 6 years = July 15, 2007.
Does a Partial Payment Restart the SOL?
Depending on what state you live in, if you make a partial payment, you could be postponing the Statute of Limitations’ taking effect on your collection account or charge-off. A collector might call you one day and say you waived your rights when you made a deal with the collection agency. Do not take anything a collector tells you for granted. Make them prove it to you, in or out of court. For about half the population, the Statute of Limitations started ticking the day they made the last payment for their account.
Some states have laws which specify that a partial payment does not restart the clock on the SOL, unless there is a new written promise to pay. What that means is that you actually write out a new agreement with the original creditor and/or collection agency. If you live in one of these states, simply sending in a check doesn’t restart the clock. The statute of limitations is only extended by new written promise to pay in these states:
Arizona, California, Florida, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New York, Texas, Virginia, West Virgina, Wisconsin.
Please review the exact state statutes and the fine print associated with them before relying on this website’s info. Your situation may not apply.
Even though a debt is an absolute promise to pay, if the Statute of Limitations expiring is in force and the creditor tries to force you to pay the debt, you have the right not to fulfill the promise (debt).
Keep in mind, though, that the state statute of limitations on a credit card may come down to whether the agreement is in writing or not; whether it meets the required elements of a written contract. For instance, in Missouri if the creditor is able to produce a written credit card contract, then the 10 year statute applies. If the creditor cannot show the existence of a written contract, then the 5 year statute would apply – credit card or not.