When a debt is unpaid and a creditor attempts to collect it, a statute of limitations may apply. Federal and state laws define how long of a period the creditor can collect a debt, and after this period ends, the creditor may not attempt to collect the debt, even if it was valid. The statute of limitations varies depending on the type of debt the borrower took out.
Federal Student Loans
Some types of debt have an indefinite statute of limitations, so the collector can always attempt to collect on these debts. Federal student loan liability does not expire, and a state law cannot establish a statute of limitations on a federal student loan, according to the Department of Education. Not all student loans are federally backed, so a private student loan may have a collection period that can expire.
State Jurisdiction
When a borrower takes out a loan, the statute of limitations that applies may not be the state law in the state where the borrower lives. According to the state of Maryland, many credit card agreements include language in the loan contract that specifies that the law in the state where the credit card company has its headquarters governs the agreement.
Federal Taxes
Federal tax liabilities are also subject to a statute of limitations. According to the IRS, there is normally a 10-year period in which an IRS representative can attempt to collect a tax debt. If the taxpayer files for bankruptcy, this temporarily stops the collection process. The IRS cannot attempt to collect debt while the bankruptcy court considers the taxpayer's case, but the extra time while the court considers the case is added to the 10-year period.
Third-Party Collectors
A statute of limitations still applies if the original creditor resells the debt collection rights. Some organizations, known as debt buyers, buy a debt from another organization with an upfront payment and then attempt to collect on the debt themselves, according to New York City's Department of Consumer Affairs. The resale of a right to collect a debt does not provide additional time for the new creditor to collect the debt, so the new creditor may be purchasing a debt that is not legally collectible.
Creditor Requirements
The creditor must provide certain information to the debtor when attempting to collect the debt. The creditor must include the date when the debtor incurred each charge on the bill, and some types of debts such as credit card debts often include many items. The creditor may have the right to add additional charges, such as interest or financing charges.
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