Statute of Limitations on Debt Collection

Statute of Limitations on Debt Collection is the amount of time that lenders have to collect their debts by suing you in court and by other legal methods. Once the statute of limitations period is over, the lenders cannot sue you in court. However, the debt that you owe STILL REMAINS. Do not think that once the statute of limitations period is over, your debt will dissappear. It will not! Lenders can collect their debts owed via other legal methods.

We should point out that there is NO Statute of Limitations on the following types of debt owed:

  • Child support due payments
  • Federal & Local state taxes
  • Parking fines, illegal fines, etc.
  • Federal Student Loans

Each US Statute has its own statute of limitations periods. Generally speaking, here is the statute of limitations on the following types of debt:

  • Auto Loans: Debt owed on auto loans generally expires in 6 years.
  • Unsecured Debt: 3-6 years after the last missed payment by a consumer, or last tracked activity.

The moment you sign that debt contract for example a car lease document, a personal loan or other types of loans, the Statute of Limitations period begins. However, this rules varies state by state. Some states also allow the 'adjustment" of this period.

For example, a person living in Alabama has credit card debt of $15000 and does not make a single payment for 3 years. Now in the state of Alamaba, the statute of Limitations period is 6 years. If that person travels out of the state of Alabama (say to Florida) for 1 year, then his statute of limitations period STOPS up until he returns back to Alabama from Florida. Upon his return to Alabama, this period resumes again (3 more years).

Also note that after 3 years of having not made a single payment on your debt, you start making payments again. This new payment automatically resets the statute of limitations period to 0.

We will now abbreviate the word statute of limitations as SoL. Consider another example:

You sign an auto financing contract on January 1st, 2006 where the first payment of $300 is due on February 1st, 2006. In February, you never make a payment towards your debt. The SoL expires on February 1st, 2012 (assuming you live in Alabama where the SoL period is 6 years). Why Feb 1st? This is because Feb 1st was the last time you made a delinquent payment on your loan, or this was your last missed payment. The SoL period starts counting from your last missed payment.

Now assume you receive a call from a debt collection company that instead of paying $300/month, you pay $150/month. You receive this call on March 1st, 2008 (2+ years have expired on the SoL period). This offer sounds pretty good to you and you indeed do make the payment! Hey! The SoL period at this point automatically resets to 0 and will run for another 6 years!

Therefore, every payment you make towards credit card or personal loan debt resets the SoL clock. This resetting of the SoL clock applies only to unsecured debt and NOT secured debt. This is because in Secured Debt, the lender will simply confiscate your collateral (a pledged home, your car, etc) and will not have to deal with collection issues.

If your lender harasses you after the SoL period of collecting the debts is legally over, you will not have to go to court. The court will probably call off the case as soon as the Judge finds out that the SoL period is over. You should write up an "Expired Statute of Limitations" letter to your creditor and inform him that the SoL period is over. You should also note to them that you will use this defense for yourself incase they take you to court. We provide a sample of the letter in the above link.

Most people confuse the Statute of Limitations Period of Debt Collection with the SoL period for Credit Reporting. For instance, consider you live in Arizona where the statute of limitations period is 3 years. After 4 years, you can totally refuse to pay that debt and the court will rule in your favour. However, according to the rules defined in the Fair Credit Reporting Act (FCRA), your delinquent debt will be shown for upto 7 years (since your last delinquent or missed annuity payment).