Debt statute of limitations

What are the rules and ethics about the
statute of limitations on debts?

When does a debt expire and become canceled?

Debts that have been dormant can expire after a certain amount of time. The statute of limitations on debts varies from state to state – usually between three and six years. The clock starts ticking, in the case of credit cards, on the last day of activity in your account. It keeps ticking until either part of the debt was paid, or until the statute of limitations is reached.

Does this mean that we should just hunker down and never pay our debts? Of course not! Dishonesty is never good policy. But even if a debt has expired, there may be good reasons to resolve it anyway. Here's how this whole process works.

The Biggest Misconception about Statute of Limitations on Debt

This article is guilty of it. We use the words "canceled" and "expired". That gives the impression that, after the statute of limitations is reached, the debt no longer exists.

That's wrong.

A debt continues to exist as long as it is not paid. So what does the statute do? It means that a collection agency cannot win a court judgment against you on a debt that has reached its time limit. The debt continues to exist, your moral obligation to pay is there. What's more, this debt which you failed to pay remains on your credit report. That can hurt you.

When to Use the Expiring of Debt

Often, debt collectors go after the wrong person. When a credit card debt is past a certain age, the companies can sell the debt to a collection agency. Collection agencies can then sell the debt to other collection agencies. There is plenty of room for mistakes. In these cases, a debt that has reached the statute of limitations should simply be ignored.

The collection agency must give you written notice of the debt, its history and who the original creditor is. Use that to research this debt to find out if it is, in fact, a valid one. If it is, you technically do not have to pay it, although it is probably wise to do so.

What Causes the Statute of Limitations on Debt to Reset to Zero?

Any action at all in a credit card account will reset the clock. That includes a payment, the promise of a payment, or continued use of the credit card. For example, if you are contacted by a collection agency, and make a commitment to pay, you have revived the debt. Be careful not to do this, unless you intend to pay the debt in full.

Do All Debts Have a Statute of Limitations?

No, certain debts are enforceable in perpetuity. As a rule, anything you owe to the federal government, including student loans, has no expiration date. Credit card debts, however, are classic for a statute of limitations.

I Don't Have A Lot Of Money, Should I Still Let My Debts Expire?