How long can a debt collector pursue a debt?
How long can a debt collector pursue a debt? Many states have statutes of limitations in place that prevent creditors and debt collectors from using legal action to collect on old debt. Thus, if a creditor takes too long to recover a debt, it becomes ‘statute-barred.’ A ‘statute-barred’ debt is unenforceable because the time given to a creditor to chase their payment has passed. Read of to see what exatly that is.
What is a statute of limitations on debt?
How long a debt collector can pursue a debt will depend on a given state’s statute of limitations. These limitations refer to the time a debt collector must legally sue someone over debt. The aim is to protect debtors from being liable for their debts forever.
Each state has its statute of limitations, which may vary depending on the type of debt, where you live, and the state specified in the debt agreement if it differs from where you live. There are four different categories of debt. They include:
- Written contracts include debts with a physical document. The document must be signed by both the borrower and the creditor, even if the arrangement is informal. The contract is legally binding and consists of the agreement and the terms and conditions. Examples of such contracts are car loans and credit cards.
- Oral contracts include verbal promises of repayment or spoken agreements between two people. Because they are not in writing, such contacts may be difficult to enforce.
- Promissory notes: These promises of payment define the number of payments, who will pay, the timeline for payments, and the interest terms. They contain less detail than written contracts and only require the debtor’s signature. Common examples of promissory notes are mortgages, student loans, and other formal debt arrangements.
- Open-ended accounts include revolving credit accounts that people borrow from, repay, and borrow again, such as credit cards and lines of credit. For this type of debt, even if you owe money, the accounts will remain open if you keep making payments.
For some states, limitations for all four types of debt are the same. For others, they may differ. For example, the statute of limitations for written contracts in California is two years for oral agreements and four for written contracts, promissory notes, and open-ended contracts.
However, there is no statute of limitations for federal student loans, which means no limit on how long a collector can sue for unpaid federal student loans.
How long can a debt collector pursue a debt?
The clock on the statute of limitations on debt typically starts after the last account activity or when a person first misses a payment on their debt. However, there are instances when the statute of limitation can reset. For example, when a borrower makes a payment on an old debt or acknowledges it in writing. The terms in the contract with the creditor or if the borrower moves to a state where the laws differ may also affect when the clock begins. Or on a credit card when the holder makes a new charge or when a discharge in bankruptcy is revoked.
It’s important to note that in some states, debt collectors are not allowed to try and collect the debt once it’s passed the time limit. However, in other states, they can still work to collect the debt indefinitely, even if they can’t sue the debtor. The aim is to get the borrower to pay the debt voluntarily.
Such instances are becoming increasingly common as more creditors sell off debts they’ve removed from their books to third-party collection agencies. These agencies then try to collect even though the statute of limitations has passed. However, these efforts stop when the borrower indicates they no longer wish to be contacted about the debt.
The bottom line
A debt collector can pursue old debt depends on the statute limitation. However, even though debt collectors may not be able to sue the borrower to collect a (time-barred) debts, they may still try to collect those debts.
If a debt collector sues someone and the debt is too old, the debtor may have a defense to the lawsuit. They can even claim against the collector for violating the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from suing or threatening to sue debtors for being time-barred.
Are you having problems trying to collect a debt? To avoid a loss, contact us before the debt becomes statute-barred, and let us help you recover your money.
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