What Is the Statute of Limitations on Debt?

If you've ever been late on paying a bill or two, you know the worry that goes along with it. How will you ever catch up? And if you’ve ever missed enough payments for your bill to end up in collections, that anxiety only continues to grow. But what happens when months and even years go by and you still can’t pay on the debt? Will you get taken to court? How long does the debt collector have before he or she can’t legally hound you anymore?

That’s why the statute of limitations on debt exists. And while it sounds like a fancy term only lawyers use, it’s definitely something you need to know about. Why? Because if you’re like the average American, who has over $23,000 in nonmortgage debt (for things like cars and credit cards), you need to know what happens if you miss a payment (or years of payments).¹ 

Don’t let debt pull you under. Here’s what you need to know about the statute of limitations on debt and what to do if you’re behind on your payments.

What Is a Statute of Limitations?

Before you picture a New York City skyline—no, a statute of limitations isn’t like the Statue of Liberty. A statute of limitations on debt is the maximum amount of time that a creditor can take legal action against you for defaulted (late) debt payments.

How Does a Statute of Limitations Work?

All consumer debts (like credit cards, mortgages, auto loans, etc.) have a statute of limitations. It usually begins after the first missed payment, but it can start as soon as you sign the contract. And depending on the kind of debt involved and what state you live in, the statute of limitations can range from three years to up to 20 years!

Time-Barred Debt

Debt that has passed the statute of limitations is called time-barred debt. Creditors can’t legally take you to court over time-barred debt, but they can continue to call and ask you to pay that money back because, yes, it’s still your debt.

Now, you might think you can just wait out the statute of limitations and then not pay your debts because they’ll be time-barred. But missing debt payments on purpose (even though you have the money to pay) dives into some tricky moral territory. If you made the choice to borrow the money in the first place, you should take responsibility for it—no matter how far behind you are. It’s called doing the right thing.

Plus, not paying on your debt typically stays on your credit record for seven years and may get in the way of you getting a job, buying a house, or starting a business. And before you know it, time-barred turns into life-barred!

What Is the Statute of Limitations on Debt in Each State?

The statute of limitations on debt depends on the kind of debt you have and where you live. Your debt can fall into one of four categories: oral agreements, open-ended accounts, written contracts and promissory notes (we’ll explain each in a minute). Every state has different rules for each kind of debt, so check the laws for your specific situation through your state attorney general’s office.

Oral Agreements

These are any kind of spoken promise—like a handshake between you and Uncle Bob. They can be hard to prove and typically have a shorter statute of limitations because they rely on your memory.

Open-Ended Accounts

This category of debt includes any revolving lines of credit (where there’s a cycle of borrowing and paying back), such as store accounts or credit cards.

Written Contracts

Written contracts, like for medical expenses or home improvements, are printed agreements that outline the terms of the loan—how much you’re borrowing and how and when you’ll pay it back. They’re signed by both the lender and the borrower.

Promissory Notes

Promissory notes are also written agreements, but they only need to be signed by the borrower. They usually list your monthly payment, your interest rate, and the date the debt needs to be paid back. Student loans and mortgages are examples of promissory notes.

What to Do if Debt Is Past the Statute of Limitations

Legally, creditors and debt collectors can’t sue you for time-barred debt (again, that’s just a fancy term for debt that’s past the statute of limitations). But that doesn’t mean they won’t try. They might argue with you about how much money is due or when the statute of limitations actually started. They may even try to get you to pay debt that isn’t even yours!

Get help with your money questions. Talk to a Financial Coach today!

If a debt collector threatens to sue you for old debt, ask them two questions:

1. Is the debt time-barred?

2. What was the date of the last payment?

They don’t technically have to answer, but if they do, they have to tell the truth. And then you can compare their answers with your own records.

If it’s already past the statute of limitations, you can tell them they can’t sue you. But if you are called to court (even if your debt is time-barred), you do actually have to go to court and ask the judge to dismiss your case. If you don’t show up, the judge could order you to pay the money just because you wouldn’t cooperate—not cool. That’s why it’s so important to keep written records of all your debt payment history so you have proof of what you really owe.

You can fight your way out of debt! Here’s how to make it happen:

• Take care of necessities first. Collectors have one mission and one mission only—to get your money. But no matter how they come at you, you still have to put food on the table. Your priorities should always be the Four Walls: food, utilities, shelter and transportation. Take care of those first before you even look at your debt.
• Use the debt snowball method. This method gives you a focused plan to tackle debt one payment at a time. First, list all your current debts smallest to largest, regardless of interest rate. Then pay minimum payments on everything but the smallest one—that’s the one you attack with a vengeance. When the smallest one is gone, take what you were paying on it and use that money toward the next-smallest one. After you’ve paid off all your current debt, move on to taking care of any old debt you have—because you want that gone too! Those small wins can help you defeat debt for good!

Re-Aging Debt (aka Zombie Debt)

We’ve said this before, but it’s worth saying again: Even if your debt is time-barred, you shouldn’t write it off completely. You still need to pay back what you owe. But if you make even one tiny payment on time-barred debt, it automatically re-ages the debt and resets the clock on the statute of limitations. This means you just reclaimed the debt as yours. And now collectors can legally come after you for it.  

That’s what we call zombie debt, and it can be as scary as it sounds if it’s not handled the right way. But if you’ve got zombie debt creeping up on you, fear no more! Remember the debt snowball method and you’ll be debt-free in no time.

Try to Settle Your Debt

When it comes to paying back old debt, collectors know that some money in their pockets is better than nothing at all. So even if you can’t pay the full amount of what you owe, start by offering them what you have. If you’ve got $200, see if they’ll take $200. If they won’t take that, call back when you have more to offer. If you’ve got old debt, it’s likely the amount you owe has grown over time because of interest and late fees, so try to get collectors to settle for the original amount or less. You don’t have to get ugly or stoop to their level. Just be honest about how much you can actually give them and see if they’ll meet you halfway.

But whatever you do—get everything in writing! Collectors are known for going back on their word, so don’t believe them when they promise to “do you a favor.” Also, never give a collector your bank account numbers, or they will clean you out!

And remember the thing we said about zombie debt? Unless you have something in writing from a collector about settling for a specific amount, be careful about making a payment on debt that has passed the statute of limitations—or you may open yourself up to a legal battle. So, print out whatever agreements you and the collectors decide on, and keep those records for the rest of your life—just in case they try to come back later (it’s been known to happen).

We know dealing with debt collectors can be a hair-pulling hassle (to say the least), but don’t give up! Just make sure you know your rights, your debts and your best negotiation tactics when dealing with these snakes. And don’t be afraid to hang up the phone when you feel you’re being bullied. If a debt collector continues to harass, lie to or threaten you, you can send a letter asking them to stop contacting you and report them to the Federal Trade Commission.

Get on a Proven Plan

Take a minute to imagine what it would be like to not have to argue and plead with debt collectors. What if you never had to worry about staying on top of your payments because you didn’t have any payments? Say what? Yeah, you heard us right. A life without debt is totally possible, and it starts with changing how you think about money.

Financial Peace University (FPU) will teach you how to budget, pay off debt, save for emergencies, and invest in your future. If debt has you living in fear and you’re tired of struggling to make ends meet, this course will show you the next right step to take. And then you could be the one telling debt collectors, “Wrong number!” Start FPU today and take control of your finances!