If you owe funds that are overdue, you may be concerned that a debt collector will sue you to reclaim the money. However, depending on how old the debt is, this may not occur.
Every debt collector has a certain number of years (a statute of limitations) that they can pursue you in a court of law to legally obligate you to pay back the money. However, each state has its own laws on how long this statute of limitations period is. After that period passes, though, your unpaid debt is considered â€śtime-barred,â€ť and debt collectors canâ€™t sue you over it.
Hereâ€™s a deep dive into time-barred debt and the rules surrounding it.
The rules for time-barred debt depend on two things:
Each state has different laws regarding the statute of limitations for outstanding debts. Typically, it ranges from three to 10 years. Different debts have different statutes of limitations. You can review your stateâ€™s statutes of limitation on debt here.
Keep in mind that if your debt collector continues to contact you about debts that are owed past their statute of limitations, theyâ€™re within their rights. A collector can contact you to collect the debt as long as they have it on their books.
A collector canâ€™t sue you for time-barred debt. A collector, as defined by the Fair Debt Collection Practices Act, is anyone who is attempting to collect on your debt. This might be your original lender or creditor, debt collection agency or an attorney assigned to collect your debt.
Debt collectors are legally obligated to tell you whether the debt is beyond the statute of limitations and whether they can sue you. If they donâ€™t say this explicitly, they have to confirm that your debt is within the statute of limitations if you request verification and formally dispute the debt.
Formally disputing your debt can be challenging. To do so, youâ€™ll need to write a letter requesting verification that the debt is still within its statute of limitations. Your debt collector canâ€™t continue to try to collect on your debt, or attempt to take you to court over it, until they resolve the verification youâ€™ve requested. You can request for your debt collector to verify:
If your debt is outside the statute of limitations but a collector decides to pursue legal action anyway to collect your time-barred debt, you can legally defend yourself in the court of law. If this is your situation, seek legal help as soon as possible to contest the lawsuit.
A consumer advocacy attorney can help you navigate the lawsuit and confirm that your debt is outside of the statute of limitations. Although you can always choose to go to court without an attorney, itâ€™s not advisable. If you choose to not show up in court, the court will likely rule in your creditorâ€™s favor by default.
Dealing with old debts can be emotionally exhausting, and knowing that theyâ€™re outside of the statute of limitations can be a welcome relief. But youâ€™re not out of the woods yet. Your creditorâ€™s sole job is to collect payment from you, and they can do so in a few different ways â€“ even if you believe that your debt is time-barred.
Just because your debt is time-barred doesnâ€™t mean that you shouldnâ€™t pay it back. After all, you did take out the debt and, presumably, you didnâ€™t repay it in a timely fashion.
Debt collectors can continue trying to collect the debt you owe for the rest of your life. The only difference with time-barred debt is that a collector canâ€™t sue you for the money. If you choose not to repay your time-barred debt, you wonâ€™t encounter any legal ramifications.
However, failing to repay your debt could come with other consequences. For example, you might find it harder to get new lines of credit, or your insurance premiums might be higher, because the unpaid debt is hurting your credit score.
If your debt is time-barred, you can choose to handle it in several different ways. How you choose to do so could potentially have an impact on your credit score, so itâ€™s important to weigh the pros and cons of each option carefully.
First, you can consider paying off your time-barred debt. With debt collectors contacting you frequently, paying off a time-barred debt might feel like a pressing task to check off of your to-do list. However, if you have to prioritize debts to pay off, you should focus on newer debts first.
Once an existing debt goes to collections (as most time-barred debts have), paying it off wonâ€™t dramatically improve your credit score. Instead, focus on paying down current debts first, then refocus your attention to outstanding time-barred debt.
Another option you can pursue is to ignore your debt collectors. This is a tempting course of action, especially if you donâ€™t plan to pay back the time-barred debt. However, this may not be your best option. Creditors wonâ€™t stop contacting you, so ignoring them wonâ€™t make the debt (or the collectors) go away.
Additionally, if you ignore the creditors, youâ€™ll be unable to dispute the debt or request that they verify whether or not itâ€™s within the statute of limitations. They could potentially take you to court over the debt, which could be avoided through communication with them.
If youâ€™ve confirmed that your debt is outside of the statute of limitations, you can write a formal cease and desist letter to your creditor. You can use these templates from the Consumer Financial Protection Bureau to help you put together your letter. Once your creditors receive this letter, they should stop contacting you.
Bankruptcy is a legal proceeding in which the court determines whether you should be discharged of your debts. With a Chapter 7 bankruptcy filing, this essentially gives you a chance to start over.
If you feel that it will take you five years or more to pay off your debts, filing for bankruptcy might be something you consider, but declaring bankruptcy isnâ€™t easy. Contrary to popular belief, bankruptcy isnâ€™t free â€“ you have to pay for an attorney and the filing fees associated with declaring bankruptcy.
If youâ€™re considering filing for bankruptcy, you should consider speaking with a lawyer who specializes in such cases to ensure you go through the filing process correctly.
Remember that filing a Chapter 7 bankruptcy will help you restart with a clean slate â€“ but it doesnâ€™t automatically rebuild your credit. In fact, a bankruptcy stays on your credit report for seven to 10 years. Finally, bankruptcy isnâ€™t a cure-all solution as not all debt can be erased by declaring bankruptcy.
The following debts canâ€™t be discharged through bankruptcy:
Although having a time-barred debt can be a positive thing as you wonâ€™t necessarily be sued for not paying it back, it doesnâ€™t necessarily reflect well on your finances. The debt will continue to bring down your credit score, and you may have problems getting additional lines of credit in the future as a result.
Seek guidance in the form of credit counseling services. You can reach out to the National Foundation for Credit Counseling or the Financial Counseling Association of America for help managing your debt â€“ time-barred or otherwise.
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