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What You Need to Know About Debt Collection Statute of Limitations

    

SUMMARY: Are you curious about the statute of limitations on debt collection? Learn how to protect yourself from bad collection practices and get your finances back on track.

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As of 2020, around 80% of all Americans had some form of consumer debt, totaling trillions of dollars in debt collectively. Occasionally, that debt gets sent to a debt collector. If you have debt—especially if you have old debt—you may be wondering what you need to do should a lender or collector contact you.

Strategies Used by Debt Collection Agencies

A common strategy used by debt collectors and creditors is to take legal action against consumers who owe them an unpaid debt. If you fail to take proper action in these lawsuits, creditors can use all kinds of strategies to collect, such as placing liens against your property, freezing money in your bank accounts, or garnishing your wages. What you may not know is that creditors only have a certain amount of time to resort to suing you over a debt.

The Specifics of Debt's Shelf Life

The time period debt collectors have to file a lawsuit to recover a debt is called a statute of limitations. Most statutes of limitation fall in the three to six-year range, but the time frame depends on individual state statutes and the type of debt involved. For example, in 22 states, the statute of limitations on private student loans lasts six years but can range anywhere from three to 10 years. In the case of medical debt—which is the leading cause of bankruptcy in the United States—the statute of limitations can also range anywhere from three to 10 years. The same goes for credit card debt.

How the debt was obtained can also affect the statute of limitations. Written contracts, oral contracts, and debts on accounts and promissory notes, all have different limitations. It is important to note that some creditors will add clauses to their written agreements dictating that a particular state’s laws will govern the debt, regardless of where the consumer lives. In some cases, once you make a partial payment on a debt or agree to make a payment, the clock starts over on the statute of limitations.

After the Statute of Limitations Runs Out on Debt

Once the debt exceeds the time limit established in the statute of limitations, it is then considered time-barred debt. Being time-barred does not necessarily mean debt is forgiven. In fact, you may continue to owe money and your credit score can continue to be impacted. You may still even receive collection calls and notices regarding time-barred debts. But if you get sued, and you can prove your debt is time-barred, then the suit should be dismissed. The court does not keep track of whether or not your debt is time-barred, so it is your responsibility to track the statute of limitations on your debts.

How To Deal With Old Debt

When it comes to dealing with old debt, you may want to consider asking for legal advice from a professional to confirm whether or not your debt is time-barred and what to do about it. Technically, you do still owe the debt, and it may be negatively impacting your ability to take on new credit, but by familiarizing yourself with whether or not a debt is time-barred, you can protect yourself against unwarranted lawsuits.

It's also important to familiarize yourself with the various tactics creditors can legally use to collect a debt. There are certain tactics that are illegal for debt collectors, whether the debt is time-barred or not. Under the Fair Debt Collection Practices Act (FDCPA), you are protected from abusive debt collection practices, such as threatening, harassment, or contacting your place of work.

As a consumer dealing with debt, it is important to arm yourself with knowledge. Be sure to monitor your credit report and credit history through one of the primary credit bureaus, learn your debt’s statute of limitations, and research your state’s statutes as you seek a path to healthy debt management. It is also a good idea to ask for help if you need it and consult with legal professionals. Dealing with old debt can feel intimidating, but by arming yourself with knowledge, you can maintain the health of your personal finances.


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Sources:

https://www.investopedia.com/terms/s/statute-of-limitations.asp

https://www.incharge.org/understanding-debt/credit-card/what-is-statute-of-limitations-all-50-states/

https://shiftprocessing.com/american-debt/

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