What You Need to Know About Debt’s Statute of Limitations

by John Kiernan on February 2, 2011

Statute of Limitations for DebtWhile many of us might think that the term “statute of limitations” is only relevant to criminal prosecution and TV shows like Law and Order – Special Victims Unit, it’s actually quite important to personal finance matters as well.

In general, a statute of limitations is how long something remains relevant under the law. While it certainly can be used to describe the amount of time following a crime that someone can be prosecuted for committing it, the term may also be used in the context of a lawsuit to recoup credit card debt, for example.

Hopefully you will neither commit a crime nor get into debt during your lifetime. However, given the state of the economy, incurring some unmanageable debt in the past few years might have been unavoidable. If this is indeed the case, then thoroughly understanding the statute of limitations for credit card debt is a necessity.

The statute of limitations for written contracts like credit card agreements varies by state and ranges from 3 to 15 years. Before it expires, creditors can successfully use the courts as a means of recouping the money you owe them. After it runs out, your debt becomes “time barred.” A lawsuit can still be initiated at this juncture, but it will be dismissed as long as you explicitly state before the court that the statute of limitations for the debt in question has expired.

The question, therefore, is when does the statute of limitations clock start rolling?

The countdown begins when you make your last payment toward your debt. Thus, whenever you make a payment you are basically re-aging your debt by causing the statute of limitations to start anew. As a result, you should avoid making small payments toward your debt unless you’re able to reach a settlement or develop a payment plan with your creditors because you don’t want to lengthen the amount of time you are vulnerable to a lawsuit. Depending on your state, other actions—such as admitting to owing money or promising to pay it—might also re-age your debt.

Finally, you must note the distinction between debt’s statute of limitations and the length of time negative information stays on your major credit reports. These two time frames are in no way connected yet are regularly confused. Negative information about credit card debt is removed from your credit reports exactly seven years after you become delinquent, and unlike debt’s statute of limitations, nothing you do thereafter will affect this duration.

You now have the requisite knowledge to successfully deal with credit card debt and its legal ramifications, though you will hopefully never have to put it to use. If you want information about the statute of limitations as it relates to crime, I suggest contacting a lawyer!

[Disclosure: Some of the links within this article point to CardHub.com, which is owned by the same parent company as Wallet Blog.]


Very relevant topic.

The following La Times article (http://articles.latimes.com/2011/feb/01/business/la-fi-lazarus-20110201) (from Tuesday, Feb 1) reports that several credit card companies - Capital One in particular - are sending out bills for debts whose statute of limitations have expired. The bills don't mention that the money does not have to be paid back. Curious if partial payment on these bills will retrigger the statute of limitations.
February 3 at 18:38 pm

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