Debt Collection and the Statute of Limitations

Let’s say that you borrowed money from someone, either by oral agreement or by written contract. You don’t make payments on the debt, and the person or entity who loaned you the money doesn’t contact you to ask for it (perhaps the lender forgot about it)

Years pass by, and finally, the person who loaned you the money wants it back. Do you have to pay for it? Perhaps not. If the statute of limitations has passed, you won’t have to repay the debt.

A statute of limitations refers to the time that someone has to bring a lawsuit. Statutes of limitations vary depending on the type of case, and they also vary state by state. The purpose of the statute of limitations is to ensure that lawsuits are filed within a reasonable time from when the incident occurred to preserve the integrity of evidence and ensure that potential defendants are not exposed to claims indefinitely.

When it comes to debt collection, a statute of limitations is the time a creditor can ask the court to force a debtor to pay. The statute of limitation starts on the day the debt was first incurred. Because the court system does not keep track of the statute on your debt, if you want payment of the debt to stop, it is your responsibility to prove when the debt began and that the debt has passed its statute of limitation.

What Are the Different Types of Debt?

There are four principal kinds of debt. You should know which type of debt you have because each kind’s statute of limitations differs. If you are not sure about what type of debt you have, it is important to check with an attorney.

The four types of debt are:

• Oral Agreements: It may not seem like it, but this is a valid contract even though you only verbally agreed to pay back the money, and there is nothing in writing. One problem with oral contracts is that it is difficult to prove when they began, which makes it difficult to determine if the statute of limitation has run out.
• Written Contracts: These refer to debts that come from a written contract that was signed by you and the creditor. A written contract must include the terms and conditions of the loan, such as the amount of the loan as well as the amount of the monthly payment. It will have a date reflecting the date that the debt began.
• Open-Ended Accounts: These are accounts with a revolving balance that you can repay and then borrow again. Examples of open-ended accounts are credit cards and lines of credit. If you can only borrow the money for a fixed amount of time, it is not considered an open-ended account.
• Promissory Notes: These are written agreements to pay back a debt in certain payments, at a certain interest rate, and by a certain date. Some examples of promissory notes are mortgages and student loans.

What Are Time-Barred Debts?

Time-barred debts are debts that have passed the statute of limitation. This means that creditors and debtor collectors will not be able to win a lawsuit against you for this debt because the statute of limitation has expired.

This does not mean you do not owe the money just because the debt has passed the statute of limitation. But if the statute of limitation has expired, the creditor will not get a judgment against you as long as you can show the court proof that your debt is too old. Some examples of proof are your own records of communication that you have made regarding that debt, a personal check that shows the first time you made a payment, and, of course, any contract that exists.

What Happens to Time-Barred Debts?

The Fair Debt Collection Practices Act prohibits debt collectors from suing or even threatening to sue you for a time-barred debt. Of course, it is possible that your debt collector may violate these provisions, but they are there to protect you.

If you happen to be sued for a time-barred debt, it is important not to ignore it on the assumption that it will take care of itself or that it does not matter because the statute of limitation has expired. If you do not defend yourself in a lawsuit launched against you by the person or entity that loaned you the money (or the debt collection agency), you could easily find yourself with a court judgment against you.

The creditor or collector could obtain a default judgment against you and be granted an order to garnish your wages if you do not pay the judgment (that is, payment for the debt will be taken directly from your paycheck). Thus, if you are improperly sued for a time-barred debt, it is important to participate in the lawsuit to provide the court with proof that the statute of limitation has expired.

Collection activity is still allowed on time-barred debt, and just because the statute of limitation has expired, this does not mean that the creditor cannot still come after you for the debt. It just means they will lose if you fight it in court. Creditors and debt collectors can still try to collect time-barred debts with calls and letters as long as they do it within the law’s bounds. Also, time-barred debts can appear on your credit reports if the credit reporting time limit has not expired.

What Are the Laws Regarding the Statute of Limitation for Debt Collection?

The statutes of limitations for debt collection vary state by state, and based on the type of debt you have. For example, in the state of California, the statute of limitation for debts incurred from oral contracts is two years, while for debts incurred from written contracts, promissory notes, or open-ended accounts, it is four years.

In contrast, in the state of Florida, the statute of limitation for debts from oral contracts and open-ended accounts is four years, and it is five years for debts from written contracts or promissory notes.

Should I Contact a Lawyer If I Have a Debt that Might Be Impacted by the Statute of Limitations?

If you owe debt and are not paying it, you can be sued by creditors and debt collectors. However, if the statute of limitation has expired on a particular debt, creditors and debt collectors will not be able to win a lawsuit against you. Before you decide not to pay a debt, check to see the statute of limitation for that type of debt in your state. It is important to consult with an experienced collection attorney before proceeding.

An attorney can help you establish when the debt started, which is key to knowing when it will expire. If the statute of limitation has expired but you get sued anyway, a local attorney will know the mechanisms in your state for proving that the debt is too old to collect.