What's the Effect of the Statute of Limitation on Debt?

Jun 29, 2010
Asa Ghaffar

Effect of the Statute of Limitation on Debt - ShareNow

Debt recovery agencies must comply with the statute of limitation on debt. What are time-barred debts, are they legally recoverable & must debt be paid off?

It's fundamentally important to have an understanding of the effect of the statute of limitation on debt collection practices. This piece of legislation sets out the maximum period of time, subsequent to account delinquency, that a creditor can initiate legal proceedings to recover his or her money. This includes getting a lien on the equity in a property or an earnings attachment. The clock will start to run from the date of the last account activity so seek guidance from a legal professional or credit counseling service before partially paying old debts.

When Does Installment & Old Credit Card Debt Lapse?

Installment loan debt. The most common cut off point is six years from the date of delinquency. This currently applies to 24 U.S. states, including New York, Massachusetts, Georgia and Utah. The statute of limitation on debt is just 3 years in New Hampshire, but is as high as 15 years in Kentucky and Rhode Island.
Open accounts. The effect of the statute of limitation on debt is different for forms of revolving credit. For example, despite the fact that installment loan debt isn't considered time-barred for 15 years in Kentucky, the figure drops to just 5 years for credit and store card debt. Although 6 years remains the most likely timeframe, time-barred debt is after 3 to 4 years in 25 states.

* In case of change of state law, it is important to seek further guidance from either the state's attorney general or a lawyer. This would also the case if being legally pursued for old debt collection.

Avoid Restarting Time-barred Debt Under the Statute of Limitation

Any of the actions below will lead to the statute of limitation on debt being reset to the year zero. This will mean that debt recovery agencies can now take steps to recover their money through the courts. Debtors should avoid any of the following:

Paying old debts on loans, credit and store cards.
Acknowledging that the debt is still owed.
Entering a voluntary repayment program.
Reaching an agreement to pay back old credit card debt.
Using an obsolete account to pay for goods and services.

What is the Effect of the Statute of Limitation on Debt?

This legislation doesn't eliminate debt, it means that debt recovery agencies cannot go through the courts to recover their money. The only ways to legally remove this obligation is if the creditor cancels the debt, it's eliminated through a debt free solution or the full balance is paid off. Creditors can still pursue someone for time-barred debts, but the recovery methods used are strictly regulated by the Fair Debt Collection Act.