Statute of Limitations Explained

The statute of Limitations (SoL) on debt is the legal time limit that bars enforcement of the debt through the court system. It does not apply to all debts! Use the information on this page and website to learn about your state’s Statute of Limitations on debts and whether or not the rule applies to your situation.

Note: The purpose of the information provided here and elsewhere on this site is to help educate people on some of their rights and a few of the laws and other rules that apply to many debt and credit issues. I do not provide this information to help people avoid paying valid debts. On the contrary, I believe that if you owe a debt and it’s valid, and you have the financial means to pay the debt, then you must do so.

I also recognize that at some point in time, and for a myriad of reasons, many of us encounter financial difficulties. When financial disaster strikes, we need help, which is why we have laws such as the statute of limitations, bankruptcy, and other debt and credit protection laws. I encourage you to use the information below to educate yourself on the Statute of Limitations but also to seek professional financial counseling before making any decisions that might affect your financial situation.

Although there are state and Federal Statute of Limitations on certain types of debts, this page concentrates on the statute of limitations as defined by state laws and state civil collection codes.

WARNING! Not all debt has a statute of limitations! Also, when the SoL expires, it can be used as a defense to bar collectors from collecting through the courts; however, the debt DOES NOT go away! Collectors can still attempt to collect the debt using other legal dunning methods

For instance, there is NO statute of limitations on:

  • Federal Student Loans;
  • Most Types of Fines;
  • Past Due Child Support (state-dependent); and
  • *Taxes (In many cases, income taxes have a 10-year SoL, but you can suspend this or add more time by filing the proper forms. Check with a local tax resolution expert about your particular situation.

The Statute of Limitations on debt depends on the type of debt and your State’s civil debt collection codes. Generally, unsecured debt expires 3 to 6 years after the last missed payment or the consumer’s last activity on the account. Written contracts such as car loans generally expire after six years. Judgments can last up to 20 years, and judgments can be renewed at a certain point (e.g.,  six-year point).

Generally, the statute of limitations for collecting debts begins the moment you sign a credit contract! However, just about every state has specific rules on the running of the statutory period, and some even have provisions to adjust (toll) this period.

The term “toll” or “tolled” means to “stop the running of a statutory period for a certain time.” Many states use this term in their statutes of limitation rules and civil codes for debt collection.

For example, let’s say that you live in Florida, where the statute of limitations on credit card debt (open-ended credit) is four years. You do not make any payments to your credit card company for two years, leaving only two years to go before the statutory period is up. Suddenly, you decide to move to Georgia, stay 12 months, and then move back to Florida.

Florida statutes say that leaving the state or making a voluntary payment tolls (stops) the running of the statutory period. So, on the day you move back to Florida, the remaining two-year statutory period begins running again.

On the other hand, if you had two years left on the statutory period and suddenly decided to make payments for 12 months but then stopped again, the 4-year statutory period begins running again. In effect, you’ve reset the clock.

In some cases, making an actual payment or making a verbal or written promise to pay can reset or restart the limitations depending on your state code.

WARNING! While the statute of limitations (SoL) is running or even after it’s expired, making ANY payment or signing a promissory note can reset or restart (depends on your state law) the statute of limitations. Always ensure the debt is valid, and then check your state laws to see if the debt has a statute of limitations BEFORE taking any other action such as making a payment or signing an agreement to make payments.

EXAMPLE: Let’s assume the SoL on a personal loan in your state is four years. On January 1, 2000, you sign the loan papers with the first payment due February 1, but you never make a payment. The SoL expires February 1, 2004. (Four years from the date of the last delinquent payment due date that a payment was missed).

Using the above example, let’s assume you receive a collection call in February 2003 (1 year before the SoL expires) and, based on that call, make a $50 payment with a promise to pay each month. That payment can either toll (stop) the collection time clock or reset it. If you fail to make another payment and your state allows the clock to be reset, then in this example, the clock restarts from the date of the next payment missed and runs another four years.

Credit cards and personal loans are good examples of “stopping the collection time clock” because each monthly payment restarts the clock. These payments are usually minimum payments and are normally for unsecured credit (although this has no effect on the SoL). Secured credit is usually not a collection issue because the creditor simply seizes (repossesses the item).

However, it’s worth mentioning that, in most cases, items that are repossessed are often sold at auction for far below what is owed. The result is an unsecured debt that the debtor is still responsible for and expected to pay.

The statute of limitations for the collection of debts is not well known and is often misunderstood. Each state has its own specific rules. I highly encourage you to learn your state’s rules.

IMPORTANT! Many people believe the statute of limitations for credit reporting (7 to 10 years) is the same as the statute of limitations for enforcing debts! They are not the same! See Running of Credit Reporting Periods

When collection agents call you demanding a payment on an old debt, making ANY payment, including a “token payment” can reset or restart the SoL clock and open the door for the collector to seek a judgment against you. Judgments are state-dependent but can run as long as 20 years and even be renewed in many states.

IMPORTANT: Although the statute of limitations has expired (the time allotted to legally enforce the debt in court) collectors can still attempt to collect expired debts (unless they were discharged in bankruptcy) and even take you to court to try and enforce the collection of debts. However, if you meet your state’s qualifying criteria and raise the “Expired Statute of Limitations” defense, the case is generally dismissed on the spot.

When the statute of limitations has expired, and you cannot pay the debt, consider sending collectors an “Expired SoL Letter” to inform them of your financial situation and that you are aware of the expired SoL defense and will use it as your defense if taken to court.Unless you inform the person trying to collect the debt that the statute of limitations has expired, or bring it up during a court appearance, the collector stands a good chance of winning a judgment against you.

Warning! As stated earlier, even though the statute of limitations has expired and you are unable to pay the debt, you can still be hauled into court. So, you must appear in court to raise the expired statute of limitations (SoL) defense. If you fail to appear in court, collectors stand an excellent chance of obtaining a default judgment.

Winning judgments gives collectors a long time to pursue you!!!

Quite often collectors convince debtors to make “token payments” and then they quietly seek a default judgment. Unfortunately, many debtors only learn of the judgment when their bank accounts are seized or their wages are garnished!

IMPORTANT NOTE: If you discover a default judgment against you and you were never notified of the court hearing, immediately contact the clerk of the court for copies of the court documents. Look over the documents carefully for any misinformation, missing or incorrect information. If you can show the court that you were not given due process, you stand a good chance of having the default judgment overturned.

What to do when debt collectors demand payment!

If you are not aware of the debt, or you are unsure if the debt is valid, DO NOT agree to anything until the collector has validated the debt per the FDCPA, and your state laws (if applicable) and you have verified the statute of limitations!

The statute of Limitations on Credit Reports

Do not confuse the statute of limitations for debt collection with the statute of limitations for credit reporting. See the rules in the Fair Credit Reporting Act.

For example, let’s say your State’s statute of limitations for collecting credit card debt is only four years. After fours years you can legally refuse to pay the debt however, according to the Fair Credit Reporting Act (FCRA) the debt can still be reported for seven (7) years from the date of your last missed payment date.

Some debt collectors hope that, because the debt is still on your credit report, you’ll think they can still collect! Again, before agreeing to anything verify the debt is valid and check the statute of limitations!

The federal FCRA limits the number of years credit reporting agencies or credit bureaus can report most types of debt to either 7 or 10 years. Some debts remain much longer such as tax liens which remain for 7 years AFTER being paid or indefinitely if not paid. Be advised that offering to pay less than the amount owed on a tax debt can extend the statute of limitations for reporting the debt.

Credit Reporting Time Clock

The Fair Credit Reporting Act – Running Period clearly defines how long negative information can be reported!

IMPORTANT NOTE: New activity such as debt collection attempts or you making a payment does not restart the credit reporting time clock (except for taxes)!

Judgment Proof

Special Note: Judgment-proof is the commonly used term but a more accurate term would be “execution-proof”! Although creditors and debt collectors win lawsuits, they still have to collect thus, if you are penniless you are insulated not from judgment but from execution (collection of the debt – at least temporarily).

You may be considered “Judgment Proof” during periods of unemployment, while drawing disability pay or disability retired pay or if you have no assets such as home, car, land, and other big-ticket items. In other words, you have no money and no income and can prove it!

Never ignore a lawsuit just because you are broke or have no assets! If a debt collector or creditor is trying to sue and you believe that you are judgment proof, you must respond to the lawsuit as such. Failure to appear and show the judge why you are judgment proof opens the door for the judge to grant the collector a “default judgment”. Even though they cannot collect anything from you now, they can wait many years and try again. Also, the judgment show up on your credit report and costs you many points on your credit score!

If you lose your “judgment proof” status because of a change in your financial status, creditors or collectors can seek a judgment and, if successful, also seek wage garnishment of up to 25% of your disposable income.

Once you’re employed again, or your financial situation improves, it’s better to negotiate a reduced payoff rather than risk a court-ordered judgment. The difference is your credit report will show “debt settled” instead of the more negative “judgment.”