- The statute of limitations on debt is the amount of time that a creditor can sue you for an outstanding balance.
- Once the statute has elapsed, the debt is considered time-barred, though it’s still owed and could continue to impact your credit.
- Taking action on time-barred debt could reset the statute of limitations.
- Statutes of limitations on debt vary by the debt type and state laws.
Longtime nonprofit credit counselor Becky House has seen the worst of statutes of limitations on debt. A client of hers, acting on prior bad advice, accidently reset a debt’s statute of limitations—or the amount of time their creditor could sue them for the balance—by making a partial, small-dollar payment.
The creditor then sued the borrower, successfully garnishing their bank account savings, thanks to a court judgment.
“This caused a chain reaction of terrible events in this person’s life,” says House, now a director of strategic initiatives at American Financial Solutions (AFS), a national nonprofit agency.
To avoid a similar fate, let’s start with a more detailed definition: Once the age of a debt, such as a line of credit or loan, has surpassed the statute of limitations, it becomes time-barred debt.
At that point, as a consumer, you can’t be sued for the amount owed, but you do still owe it—and it could continue to affect your credit report. Meanwhile, there’s always the risk of resetting the statute, unless you know what not to do—so, please, keep reading.
What is a statute of limitations?
The statute of limitations on debt is the amount of time that creditors have to sue a borrower for outstanding debt before they can no longer do so; the debt then becomes time-barred. With some exceptions, debt becomes time-barred after 3 to 10 years, depending on the type of debt and your state.
However, “determining the applicable statute of limitations is not always clear-cut,” says Simon Goldenberg, a debt relief lawyer in New York. “For example, the underlying agreement with the creditor may have a choice-of-law provision, in which another state's [statute] may apply.”
The creditor may elect to use your home state versus the state where you borrowed, for example, if its statute of limitations is longer. (See more on statutes of limitations on debt by state, below.)
When you’re contacted about old but apparently still outstanding debt, the burden of proof would be on you to show that the statute of limitations has, in fact, expired. You might pull up old paperwork such as your account history or last monthly payment to note your last action on the account.
Not sure if a debt’s statute of limitations has elapsed? Goldenberg recommends disputing the debt by requesting a debt validation letter while not indicating that the debt is yours or that you intend to repay it, at least initially. We’ll explain why in the following section.
How does a statute of limitations work?
Think of a statute of limitations as a clock. It may wind up when you borrow, but it doesn’t actually start keeping time until you missed a payment or took your most recent action on a debt. If you made a payment on June 2, 2021, for example, the statute of limitations started ticking on June 3 of that year.
If you take another action on the debt—acknowledging it belongs to you in correspondence with a debt collector, for example—the clock resets. That would give your creditor or debt collector a new timespan to drag you into court to repay the account or take serious steps like freezing accounts or garnishing wages.
That’s why it’s so critical for consumers to tread carefully in communications with creditors.
“The laws regarding what triggers a statute of limitations restart can vary across states,” says House, the former credit counselor. “For instance in Washington state, the only way to restart the [statute] is to put in writing and sign that you owe the debt. This is different [from] federal laws, so it’s critical that people understand the rules in their state.”
Meet the Expert
House started out as a credit counselor at AFS in 2001. She was named the National Foundation for Credit Counseling’s 2019 Financial Educator of the Year.
If you don’t take action on a debt for long enough—a number of years set by the statute of limitations on debt in your state—the clock would stop, the statute would expire and you’d be free of your legal responsibility to repay it.
That said, time-barred debt can still impact you in other ways, including:
Receiving calls from debt collectors (who may be hoping that you reset the clock), though you should be aware of your rights under the Fair Debt Collection Practices Act
Harming your credit score (if the balance is delinquent or in default), as a missed payment can stay on your credit report for up to seven years
If you’re sued for time-barred debt, don’t ignore it. Contact a credit counselor or lawyer. The Consumer Financial Protection Bureau (CFPB) warns that you could be held accountable for time-barred debt if you fail to show in court or prove that the debt has surpassed its statute of limitations.
There are four different types of debt, each with their own statute of limitations, so it’s crucial to understand these definitions, too.
|Debt type||Common examples|
|Written contracts||Mortgages and other loans, unpaid medical bills|
|Oral agreements||Verbal or “handshake” contracts that involve lending|
|Promissory notes||Written contacts, such as for federal student loans, that typically don’t involve a traditional financial institution|
|Open-ended accounts||Revolving accounts like credit cards and other lines of credit|
Depending on your state, the statute of limitations could vary in length depending on the type of debt in question.
The following table serves as a guideline (in years), but it’s wise to confirm the current statutes of limitations with your state’s attorney general’s office.
What can restart a debt’s statute of limitations?
Though laws vary by state and, potentially, your borrowing contract, the following actions could reset the clock on time-barred debt:
Acknowledging that a debt is yours
Increasing the size of the debt through new borrowing
Agreeing to resume repayment
Making a payment
Should you pay time-barred debt?
For debt that’s surpassed the statute of limitations, you might not feel completely off the hook. Perhaps debt collectors are still contacting you, or your credit continues to suffer. Maybe you even feel a moral obligation to repay the debt. Whatever the reason, repaying time-barred debt could get creditors off your back and start to improve your credit score.
If you decide to pay a time-barred debt, you might consider negotiating a debt settlement. This way, the balance would hit zero and you wouldn’t have to worry about the statute of limitations resetting because of a partial payment. If you settle for less than you owe, just be sure you get written documentation that the debt will, in fact, be done.