A statute of limitations is a law which gives a deadline by which a person or organization has to complete an action. Statutes of limitations on debts give creditors a limited time in which to sue a debtor who has defaulted on a loan. These laws are state-specific and you should contact an attorney if you need legal advice about your state's statute of limitations on debt.
Causes of Action
A statute of limitations begins running as soon as a cause of action accrues. This means that as soon as you do something that gives your creditor the right to sue you for the debt, this date serves as the beginning of the time line. For example, once you fail to repay a debt, the date upon which your payment is overdue is generally the date when the statute of limitations "clock" starts ticking.
Acceleration Clauses
Some lenders include clauses in the loan terms that allow them to choose the date on which the cause of action accrues. These terms are generally known as acceleration clauses. An acceleration clause gives the lender the right to demand you pay the debt by a specific date. If you then fail to do so in accordance with the demands, the cause of action begins once the specified date passes without you repaying the debt.
Resetting the Clock
Statutes of limitations can also be reset by a debtor who makes a partial payments after a cause of action has accrued. Some states have laws that reset the clock after partial payment while other states do not. If you live in a state where repayment does reset the clock, the statute of limitations effectively starts over again as soon as you make partial payments. If you live in a state where this does not happen, the statute of limitations runs from the original date upon which the cause of action took place.
Choice of Law
While each state has its own statutes, creditors often choose a different state's laws that apply to the credit agreement by including a choice of law clause in the debt contract. This can alter not only the length of time that the creditor has, but terms such as whether the clock gets reset with new payments.
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