The Statute of Limitations and 4 Options for Old Debt

Money Girl explains what the statute of limitations is on debt, and details 4 options to help handle your old, unpaid debts.

Laura Adams, MBA
7-minute read
Episode #398

If you’ve ever owed a debt that you couldn’t pay, you know what a terrible situation it is. But what you may not know is that the statute of limitations on debt gives you certain protections from getting into legal trouble.

In this episode, I’ll explain what the statute of limitations on debt is, and why you should understand it before paying any amount of old debt. I’ll also review 4 options for how to handle unpaid debt..

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What Is the Statute of Limitations on Debt?

The statute of limitations is a legal term that refers to the time period when some legal action may be taken. In other words, it’s a strict deadline for filing a lawsuit.

When it comes to your personal finances, there’s a statute of limitations for how long a debt collector or creditor can bring legal action against you to recover certain types of unpaid debts. It varies depending on the state where you live, what’s specified in your credit contract, and the type of debt you have.

For example, the statute of limitations for credit card debt may be as long as 10 years in a few states, but most are in the range of 3 to 6 years. And some types of debts, such as federal student loans and income taxes, don’t have a statue of limitations because you’re never off the hook for them.

After the statute of limitations on a debt expires, it’s considered a time-barred debt. However, in most states, a debt collector can still attempt to collect a time-barred debt from you for as long as they want. They can call you and send you letters - within legal limits of course.

What you need to know is that even if the statute of limitations has expired on an old debt, a court may still rule against you if you don’t appear and use the statute of limitations as your defense.

So you should never ignore a lawsuit for an unpaid debt. It’s still your responsibility to prove that the statute of limitations has expired. and that there’s been no activity on an old account.

See also: The Law About Debt Collections Harrassment

What Is Reviving or Re-Aging an Old Debt?

What’s really tricky about the statute of limitations on debt is that there are different rules for when it starts and stops.

For instance, in some states it begins when you first become delinquent. In others, the clock restarts at day one any time you take an action on the account. This might include simply acknowledging that an old debt is yours, promising a payment, entering into a payment agreement, or making a payment.

Reviving or re-aging an old debt means that you’ve restarted the statute of limitations, and that the collector can now sue you for the full amount. That could put you in a worse position than if you hadn’t taken any action to begin with.

That’s why it’s so important to know the law in your state or to consult with an attorney before speaking to a debt collector about an old debt or making a partial payment.


About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.