How long can negative items remain on
your credit report? Is there a time limit on how long a creditor
can pursue you for an unpaid debt? Read the article below for the
Is there a statute of limitations on debt?
Liz Pulliam Weston, MSN Money
There are 2 main time limits: How long
debt stays in your credit reports and how long you can be sued for
it. If you're struggling, here's what you need to know.
Credit scores are plunging. Unemployment
benefits are running out. Foreclosures are high. Many Americans
are, for the first time in their lives, facing bills they can't
If you're among them, you need to keep in
mind that little in life, including debt, is truly permanent.
Knowing something about the legal limitations on collecting and
reporting debt can help you through your crisis and allow you to
get back on your feet.
There are two major types of limitations
on debt that you need to know -- and that many people confuse.
The first has to do with how long debt
problems can show up in your credit reports. Federal law typically
requires credit bureaus to drop negative information after seven
years. The clock usually starts ticking 180 days after the account
first goes delinquent (in other words, when you miss your first
payment). There are exceptions: Bankruptcies can remain on your
credit reports for up to 10 years, and some debts, such as unpaid
tax liens, can stay on your reports indefinitely.
The other curb on debt collection is the
statute of limitations, which gives creditors a certain time period
-- in most states, three to six years -- in which to sue you over a
In either case, you'll still owe the
money, unless the debt has been forgiven or discharged in
bankruptcy court. Lenders can try to collect it forever -- and
probably will -- but they can't sue once the statute of limitations
period has passed.
How long? It depends...
Statutes of limitations vary widely by
state and by the type of debt. States often have different rules
for oral and written contracts, as well as for so-called closed-end
contracts, such as installment loans, and open-ended contracts,
which typically (but not always) include credit card accounts.
California, for example, has fairly short
statutes of limitations on most debts: two years for oral contracts
and four years for written contracts, promissory notes and credit
card debts. Kentucky, by contrast, says creditors can sue over
written contracts for 15 years after the last payment was made and
for five years on most other debts, including credit cards.
You can start your research at websites
such as the
Credit Info Center, which has a chart that includes links to
relevant state laws.
Some other key points:
The devil is in the
details. Not only do states have different statutes
of limitations for different debts, but two states may treat the
same debts differently. A credit card debt might be considered an
open-ended account in one state and a written contract in another.
The only way to know for sure is to check your state laws or
consult an attorney.
You can inadvertently restart
the clock. Generally, the statute of limitations starts
ticking from the "date of last activity" on the accounts, said Los
Angeles bankruptcy attorney Scott Bovitz. (If the account is still
listed in your credit reports, the date of last activity should be
noted there.) On a credit card debt, that could be the last payment
you made or the last purchase you charged. But in some states,
making a payment on an old debt, agreeing to an extended repayment
plan or even acknowledging that the debt is yours can extend the
statute of limitations or restart the clock.
A creditor may still sue you
after the statute of limitations has run out.
threatening to sue you after the statute of limitations has run out
Fair Debt Collection Practices Act
, but that doesn't mean it
doesn't happen. To prevent the creditor from winning a judgment
against you, you'll need to show up in court and point out that the
statute has expired.
The creditor may try to pick a
better venue. If you sign a credit contract and move to a
state with different limits, the creditor may try to sue you in the
state that has the longer statute. If that's not the state in which
you now live, you should protest, because generally the state where
you reside is the one whose statutes should apply.
Debts can still exist even if
the creditor can't sue. Some people erroneously believe
that debts are erased after the statute of limitations has run out.
Although the creditor's ability to sue you has been curtailed, it
can still try other methods to persuade you to pay, including calls
and letters. The debt can also be sold to another collector that
can renew efforts to get you to pay. A legitimate debt is truly
gone only when it's paid or erased in bankruptcy court.
Collectors can't legally
restart the seven-year clock by "re-aging" the debt (giving it a
new delinquency date) or by selling it to another agency.
The Federal Trade Commission shut down one large collection agency,
Capital Acquisitions and Management, after charging the company
repeatedly had re-aged debts in its attempts to collect.