Laws on the SOL of Credit Card Debt

A statute of limitations (SOL) is the amount of time legally allowed to sue in either criminal or civil court. After this time period has expired, no legal prosecution for the offense is allowed to take place. Credit card debt is no exception. Laws establishing the SOL for defaulted credit card debt vary state to state.

Function

Statute of limitations laws concerning debt serve to protect consumers from the threat of an indefinite lawsuit. Over time, debtors change residences and old creditors cannot always keep up with the new information. Not all states require a court summons to be hand delivered, therefore a creditor could feasibly file a lawsuit against a debtor, win the suit by default, and the debtor would remain unaware of the process. This directly infringes upon the debtor's right to a defense. The Fair Debt Collection Practices Act (FDCPA) stipulates that all debtors be given proper notification of a lawsuit--something that would be very difficult if there were no SOL.

Time Frame

The amount of time available for a creditor to sue a consumer varies. On average, most states allow three to five years for a creditor to file a lawsuit. The SOL of a debt begins on the date that the original creditor either charges off the debt or 180 days have passed without the consumer making a payment.

Benefits

An established SOL for debt collection provides benefits not only to consumers but to state governments as well. While an uncontested lawsuit over a debt is as simple as a judge signing off on the court judgment, a previously oblivious debtor can easily bring the suit back to court in order to fight the judgment. This, in addition to lawsuits contested by debtors, ties up court systems. By restricting a creditor to file only within the SOL, the state government is able to cut back on the costly amount of suits and counterclaims that could occur over debts.

Misconceptions

The SOL of a debt is commonly confused with the debt's reporting period. The reporting period is the amount of time information may remain on a consumer's credit report. The Fair Credit Reporting Act defines this amount as seven years for credit card debt. The reporting period of a defaulted debt begins 180 days after the consumer stops making payments. The SOL usually times out several years before the debt is removed from the debtor's credit reports.

Warning

It is possible to reset the SOL on a debt in most states by making a payment after the debt has gone to collections. Some states take this even further, allowing a verbal agreement to pay the debt to reset the SOL. In addition, many creditors will knowingly file lawsuits on debts that are beyond the SOL in the hopes that the debtor will not respond to the suit. If the debtor does not respond, the creditor can receive a default judgment on the debt. The reason for this is that a state court system has no way of knowing that the debt is no longer within the SOL unless the debtor responds to inform them of that fact. Although this violates one of the very reasons the SOL was created, it is a far less common practice than it would be without the state guidelines.