Default on Debt Obligations

If you default on a debt obligation, the credit card issuer or lender can bring legal proceedings against you in a state court. Your state's statute of limitations laws on debt collection limit the length of time creditors have to sue you for an unpaid debt obligation. Debt is only collectible in a state court if it has not expired.

Identification

Lenders have a number of options when it comes to the enforceability of an unpaid debt obligation. The lender can pass the debt along to an internal collection department for further collection efforts, sell the debt to a third-party debt collection firm at a discounted rate or charge-off the debt at a significant loss. Often, a lender will not charge-off or sell a delinquent debt obligation until it reaches the six-month mark.

Consequences

Defaulting on a debt obligation hurts your consumer credit score. In addition to a drop in your consumer credit score, creditors may also increase the annual percentage rate charged on balances that carry over from one billing cycle to another and decrease the line of credit available on open accounts. Credit accounts that are delinquent or past due are subject to periodic penalty fees.

Consumer Credit Reports

Creditors can report unpaid credit accounts on a consumer credit report for three to 10 years, according to the BCS Alliance website. At three years, states like Alabama, Kansas and Oklahoma have the shortest statutes of limitations on delinquent credit card debt in the country. The statute of limitations for most states is three to six years. Creditors in Rhode Island have up to 10 years to pursue defaulted debt obligations in court. There is no statute of limitations on student loans.

Statutes of Limitations

Debt is only collectible in a state court if the statute of limitations has not run out. The clock starts ticking from the date of last activity or when a delinquent account is written off as a bad debt by the original creditor, which depends on state law, according to BCS Alliance. A lender can try collecting a defaulted debt obligation after the statute of limitations runs out, but collection efforts must be handled outside of court.