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Old Debt and You: The Statute of Limitations on Collections

Updated on March 17, 2010
There is a time limit on old debt.
There is a time limit on old debt.

Old debt doesn’t have to haunt you forever. There is a statute of limitations on collections in every state that serves to protect consumers from being hounded for old debt years after the debt itself has been long forgotten. This also protects consumers from being held responsible for 15 years or more worth of interest charges. Once a debt has pased the statute of limitations for collections in a given state, it is known as a “time-barred” debt.

How Time-Barred Debt Works

Each state has a different statute of limitations for different types of debt. For example, a debt in Florida that is categorized as an “open account” (credit card debt, medical debt, collection agencies, etc.) has a statute of limitations of 4 years. Written debts and promissory notes, such as a mortgage loan, also fall under the 4 year statute. Should a debt be considered an oral contract, however, the statute of limitations is reduced to 2 years. Each state’s statutes are different.

Once the designated time period for legal collection has passed, a debt collector still has the right to contact the debt via telephone, email, or mail about the debt, but no longer has the right to file a lawsuit against the debtor to recover the old debt. Unfortunately, this rarely stops collection agencies from trying. If a collection agency files a lawsuit against you over a time-barred debt and you fail to respond or appear at the hearing to defend yourself, the collection agency will be awarded a default judgment against you. The default judgment allows the debt collector permission to garnish your wages and bank accounts in 41 states.

The Statute of Limitations on Collections Can Be Reset

Many debt collectors purchase debts they know to be time-barred debts and offer the debtors extremely low payments on debt settlement agreements in the hope that some will make the mistake of accepting it and submitting a payment. Once a payment is submitted toward the new settlement agreement, the statute of limitations for collection on that particular debt is automatically reset.

This often results in the debtor being served an immediate court summons, as the collection agency now has the right to sue and garnish a much larger amount from the debtor than the “teaser payment” originally offered in the debt settlement agreement.

If you are served with a summons over an old debt that you know for a fact is time-barred, it is imperative that you respond to the summons and appear in court to defend yourself in order to avoid being forced to pay the old debt. Remember, the judge at the hearing will only find out that the debt is time-barred if you are there to tell him. Otherwise, you may find yourself at the mercy of a default judgment.

Disclaimer: I am not an attorney and this is not to be taken as legal advice. See a licensed attorney in your state for guidance specific to your situation.


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