What are Statute of Limitations?

by JR Rooney

Statute of Limitations on Debt Collection is the amount of time that creditors have to collect their debts by suing you in court and by other legal methods. Once the statute of limitations period is over, the creditors cannot sue you in court. However, the debt that you owe STILL REMAINS. Do not think that once the statute of limitations period is over, your debt will disappear. It will not! Creditors can collect their debts owed via other legal methods like a debt collection company.

We should point out that there are NO Statute of Limitations on the following types of debt owed: Child support due payments, Federal & Local state taxes Parking fines, illegal fines or Federal Student Loans.

Each US Statute has its own statute of limitations periods. Generally speaking, here is the statute of limitations on the following types of debt: Auto Loans: Debt owed on auto loans generally expires in 6 years. Unsecured Debt: 3-6 years after the last missed payment by a consumer, or last tracked activity.

The moment you sign that debt agreement, for example a car lease document, a personal loan or other types of loans, the Statute of Limitations period begins. However, this rule varies state by state. Some states also allow the ‘adjustment” of this period. For example, a person living in Alabama has credit card debt of $33000 and does not make a single payment for 3 years. Now in the state of Alabama, the statute of Limitations period is 6 years. If that person travels out of the state of Alabama (say to Mississippi) for 1 year, then his statute of limitations period STOPS up until he returns back to Alabama from Mississippi. Upon his return to Alabama, this period resumes again (3 more years).

Also note that after 3 years of having not made a single payment on your debt, you start making payments again. This new payment automatically resets the statute of limitations period to 0.

We will now abbreviate the word statute of limitations as SoL. Consider another example:

You sign an auto financing contract on February 2nd, 2005 where the first payment of $300 is due on March 2nd, 2005. In March, you never make a payment towards your debt. The SoL expires on March 2nd, 2011 (assuming you live in Alabama where the SoL period is 6 years). Why March 2nd? This is because March 2nd was the last time you made a delinquent payment on your loan, or this was your last missed payment. The SoL period starts counting from your last missed payment.

Now assume you get a call from a debt collection company and instead of paying $300/month, they say you can pay just $150/month. You receive this call on July 30, 2008 (2 years have expired on the SoL period). This offer sounds pretty good to you and you indeed do make the payment! Hey! The SoL period at this point automatically resets to 0 and will run for another 6 years!

To recap, every payment you make towards credit card or personal loan debt resets the SoL clock. This resetting of the SoL clock applies only to unsecured debt and NOT secured debt. This is because in Secured Debt, the lender will simply confiscate your collateral (a pledged home, your car, etc) and will not have to deal with collection issues.

If your lender harasses you after the SoL period of collecting the debts is legally over, you will not have to go to court. The court will probably call off the case as soon as the Judge finds out that the SoL period is over. You should write up an “Expired Statute of Limitations” letter to your creditor and inform him that the SoL period is over.

A lot of people confuse the Statute of Limitations Period of Debt Collection with the SoL period for Credit Reporting. For instance, consider you live in Arizona where the statute of limitations period is 3 years. After 4 years, you can absolutely refuse to pay that debt and the court will rule in your favor. However, according to the rules defined in the Fair Credit Reporting Act (FCRA), your delinquent debt will be shown for up to 7 years (since your last delinquent or missed annuity payment).

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