All about: Statute of limitations on debt

The statute of limitations (SOL) on a debt determines how long a creditor has to take legal action against you for an old outstanding debt. The satute of limitations "clock" begins after you default on a debt. For example, if you opened an account in 2004, defaulted on it in 2008 and it has a SOL of ten years, you can still be sued for the debt until 2018. This article provides an insight into statute of limitations on debt.

Factors affecting SOL on debt

The statute of limitations on a debt is affected by two factors: The state the debtor lives in and what type of debt it is. The statute of limitations on debt is not federally regulated. Rather, each state has its own time limit on how long a borrower can be sued by a creditor. Some states have statutes of limitations as short as three years while others are as long as 15 years. There are four types of debts: open accounts, written contracts, oral agreements and promissory notes. States can set a different statute of limitations for each type of debt. For example, a state may have a five-year time limit on an open account and a 10-year time limit on a written contract.

Types of debts explained

Open accounts Open accounts include debts that are revolving like credit card debt. A borrower can continue to borrow from the account as long as they stay within their credit limit.
Written contracts Written contracts are debts where exact repayment terms are set out in a signed contract like a mortgage or car loan. The borrower pays according to a set schedule and the loan is closed once the full amount is repaid. Oral agreements Oral agreements are similar to written contracts except that no contract was signed. Promissory notes are when you sign an agreement to pay back the money you borrowed but the terms are not set out in a contract at the time of signing.

Limitations of the creditor

The statute of limitations regulates how long a creditor can take legal action against you for an outstanding debt but it does not regulate other collection methods. This means that a creditor can continue to send you collection letters and report the negative account to your credit report after the statute of limitations on the debt have expired. As far as your credit report is concerned, creditors can report the negative account for seven to ten years after you default, depending on what type of debt it is.