Managing your debt and confronting various debt collectors can be intimidating, but it becomes much simpler when you understand the rules everyone must follow.
One of the most important things to know about any debt is that there comes a time when it is too old for anyone to harass you about it. The rules are different depending on several factors, but knowing how things work in your situation could make getting out from underneath the burden of your previous mistakes much easier.
What is a Statute of Limitations?
A statute of limitation is a legal term that defines the specific length of time before a debt is considered “time-barred” and is no longer legally collectible by either the original creditor or a collection agent.
It is important to understand that while a time-barred debt is not legally collectible, that does not mean that it isn’t a legitimate debt and will likely remain on your credit report for a specific time.
It is also critical to understand that even though the statute of limitations has passed, the average debt collector will continue contacting. It just means that they no longer have any legal course of action if you refuse to work with them.
How Do Different Types of Debt Impact the Statute of Limitations?
The biggest differentiator impacting the statute of limitations for a legitimate debt in most states is the type of contract that created the debt in the first place. The slight differences between a written contract, oral contract, promissory note, and open-ended contract could significantly affect the amount of time required for a debt to become time-barred.
An oral contract is typically the most flimsy form of a debt agreement simply because the agreement’s details are not specified in writing, which often becomes the reason for a dispute.
Written contracts, promissory notes, and open-ended contracts are all types of debt that are specified in writing, but to different degrees. While a written contract will include every pertinent detail of a transaction, a promissory note often contains less detail than a full written contract. Open-ended contracts are even less substantial as these tend to leave the door open for the borrower to borrow and repay as needed.
How Do Statutes of Limitations Vary State-by-State?
Each type of contract can qualify a debt for a different statute of limitations, depending on the state where the credit was issued.
It is not uncommon for some of the more consumer-friendly states to set the statute of limitations as low as three years across the board, but there are states on the other side of that coin that have time frames as large as 15 years for written contracts and promissory notes.
The best thing to do in any case is to know and understand the rules in your state and check those numbers regularly to make sure that they aren’t changing on you.
For a full list for each state, check out this Forbes article.
California Statute of Limitations on Debt Collection
In California, the statute of limitations is 2 years for oral contracts, 4 years for written contracts, promissory notes, and open-ended debts.
Should You Pay Debts Past the Statute of Limitations?
Regardless of whether an outstanding debt is past the statute of limitations, it will still appear on your credit report for seven years, so there is a good argument to be made for making an effort to pay all debts in full or settle for a reduced amount.
However, you likely want to avoid making partial payments on a time-barred debt because that payment could qualify as a reason to restart the clock on the statute of limitations.
In any situation where you are dealing with debts approaching or past the statute of limitations in your state, it is usually a good idea to consult with an attorney before making plans to settle those accounts.
Looking to collect a debt in California? Fill put this debt collection form to submit an account.
