Debtors who fall behind on their loan payments and credit card bills sometimes believe that their creditors are barred from coming after them after a specific amount of time has lapsed. While this is true, the conditions required for this time to pass are often misunderstood, and creditors usually have many years in which to pursue an unpaid debt.
Kinds of Debts
How long a creditor has to collect on a debt largely depends on what kind of debt it is. States differentiate between four kinds of debts: oral agreements, promissory notes, written contracts and open accounts. An oral agreement is any kind debt in which there is not a written agreement, while promissory notes are specific kinds of written agreements in which the debtor unconditionally agrees to pay back the debt. An open account is one in which the amount at loan is undetermined, such as a line of credit or a credit card.
Collections Time Limits
Every state has a statute of limitations that gives lenders a specific amount of time to collect on a debt based on the kind of debt it is. These differ widely. For example, an open account in Alabama has a three-year statute of limitations, while one in Rhode Island has a 10-year limit. Further complicating matters is that many lenders, especially credit card companies, select the laws of the state that they want to apply to the agreement. These choices of law provisions can effectively extend a statute of limitations for years longer than your state's law provides.
The Clock
The time limit for a debt starts running as soon as a lender falls into default. This means, for example, that if you miss a credit card payment, you are in default and the time limit starts running as soon as you miss the payment. When this happens, creditors typically give you a grace period before they attempt to persuade you to pay back the debt. Any time you make any payments on a delinquent account, the clock resets itself. The next time you fall into default, the clock starts all over again.
Judgments
If you're sued for a debt, your creditor takes you to court and asks the court to declare it the winner. If the creditor wins, the court grants it a judgment detailing how much money you owe the creditor. This includes the debt amount and any interest or fees that apply. Judgments too have specific limits on how long the judgment creditor has to collect the debt, which also differs from state to state.
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