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Debt Collection Statute of Limitations

There are many reasons why people stop paying their debts. Some borrowers use credit cards irresponsibly and end up with huge outstanding balances they can’t afford to repay. Others suffer temporary financial setbacks, such as job loss or divorce, and fall behind on their bills. And some people have no intention of repaying their debts and simply stop making payments after receiving goods or services from creditors.

Despite your circumstances, it is important to learn about the statute of limitations. Determining the debt collection statute of limitations in your state is important if you have any outstanding debt that a creditor has not received payment on.

What is the Statute of Limitations?

The statute of limitations is the amount of time each state allows creditors and collectors to sue consumers for payment on delinquent debts. Generally speaking, it begins when consumers fail to make their last payment.

Knowing this time limit is important because a collector cannot file a lawsuit against you to collect the debt after that time has passed. However, if you are sued for the debt and do not respond, the creditor may get a default judgment against you. It is up to you to prove that the debt is past the statute of limitations.

Once the statute of limitations expires, lenders can no longer sue you for unpaid debts in court. And once a debt has “expired,” it is considered “time-barred” and is no longer legally collectible. Even so, you may continue to receive collection calls after that date.

A statute of limitations varies depending on where you live and what type of debt you have, so it’s important to understand what these laws are in your state.

Categories of Legal Debt Agreements

There are legal debt agreements, and each agreement has its own statute of limitations. The four types of legal agreements are:
• Written contract
• Oral contract
• Promissory agreement
• Open-ended agreement

1. Written Contract

A written contract is a signed agreement in writing which specifies you and the collection agency on loan terms. You can refer to this document in case of illegalities.

2. Oral Contract

An oral contract is a verbal contract between the agency and the client. It is challenging to prove oral contracts in the courts as it will be your word against theirs.

3. Promissory Agreement

A promissory agreement is an assurance you make to your creditor through a written promissory note to the creditor agreeing to pay back a debt. It includes the interest rate and period in which to handle the debt.

4. Open-Ended Agreement

An open-ended agreement works where there is a revolving balance. A good example is in-store credits and credit cards, which you can borrow over and over. An account that only allows you to borrow once is not an open-ended account.

Factors Affecting the Length of the Statute of Limitations

The length of the statute depends on a few factors. Some of these factors are:

State Laws
Most states have statutes of limitation ranging from three to six years, but some states have statutes that extend beyond six years.

Type of Debt Owed
Credit card debt and medical bills typically have shorter statutes than mortgage loans and car loans.

When Does the Clock Start Ticking?
The statute begins on the date of your last payment (the last activity date). If you make even a small partial payment toward your debt, you can reset your statute-of-limitations period because your last activity date will be later than it was before.

How Does the Statute of Limitations Affect Your Credit Report

You are probably wondering how the statute of limitations affects your credit score. The good news is that it does not lengthen or shorten its time on your credit report.

You will get a negative report on your credit history after defaulting on your payment. The negative remark stays on your report for seven years or ten years, depending on the debt you took.

As time goes by, the negative report on your credit report will have less impact on your credit score. What this means is — you may have a good score despite having four-year-old delinquency on your credit report.

What Should You Do When a Debt Collector Contacts You?

A statute of limitations only bars debtors from suing you but not from contacting you. Since you have a debt, you are required by law to pay the debt, and the debt collectors will continue contacting you to convince you to pay.

If your debt collector contacts you about a time-barred debt. Be extra careful about what you say to a collector. Anything you say or sign may revive the time-barred debt as they may take it as an acknowledgment that you owe them.

If you also agree to pay an old debt with a debt collector, you will have also revived, extended, or waived the debt.

The Bottom Line
Knowing how the law protects consumers helps you ease the pressure you may have whenever you have to deal with debt collectors. What you say or do in case of delinquency will be “used against you in the court of law.” Ascent Network is dedicated to helping debtors understand their rights while improving their credit scores.

A more positive outlook toward a more financially secure future starts today. Give the Ascent Network a call today at 1-877-871-2400. Ascent Network helps consumers all over the United States and is available locally in Huntington Beach, CA, Coachella Valley, Palm Springs, Cathedral City, Rancho Mirage, Palm Desert, Desert Hot Springs, Indian Wells, La Quinta, Indio, and Thousand Palms.

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