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Debt Statute Of Limitations - Understanding the Statute of Limitations on Debt

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A statute of limitations refers to the amount of time a person (or the government) has to bring suit against another party for a wrong. Some crimes have no statute of limitations; that is, a person may be held responsible for the crime at any point after it is committed. The United States, however, imposes a statute of limitations on debt. In most states, a creditor has three to six years to bring suit against a debtor, though some states allow up to fifteen years for the creditor to file. The statute of limitations on debt generally begins on the date of the last activity on the account, or the date that the creditor wrote off the account as bad debt.

A statute of limitations differs from a credit reporting time limit. The latter refers not to legal action, but to the amount of time a credit bureau has to report a delinquency on a person’s credit report. The credit reporting time limit is generally seven years, though for special circumstances such as bankruptcy, a longer statute may apply.

The debt statute of limitations can vary within the state based on the type of debt accumulated. In some states, debts from open accounts (i.e., a credit card), written contracts, oral agreements, and promissory notes all carry a different statute of limitations. It is important to know different states’ statutes, because when a debtor moves to a state with a longer statute time, some collectors will try to use the statute in the new state to collect on old debt.

A debt statute of limitations does not erase the debt. Rather, it can be used to keep the creditor from bringing suit against the debtor for additional monies. The debt can also still show up on a credit report. If the creditor brings suit after the statute of limitations has expired, the debtor may use the statute to win in court. Legally, the best way to deal with a creditor trying collect money past the time of the statute is to inform them of the statute of limitations, and end communication there. The debtor should not admit that he owes any money, but only that the statute of limitations has run out. Any activity on the account will restart the period of the statute.

If a creditor violates the statute of limitations, it is possible that a debtor can even bring suit against the creditor for trying to illegally sue for the owed money. The debtor may even have a cause of action for intentional infliction of emotional distress.

Some debts do not carry statutes of limitations, including federal student loans, income tax, and in some states, child support. Federal income tax does have a ten-year statute. The IRS has ten years from the first tax bill sent out to attempt to collect. However, states have the right not to subject income tax to a statute of limitations. Therefore, some states, such as California, can hound a person for income tax for the rest of his life.

The debt statutes of limitations exist to make debt collection a fairer process, so that debtors do not have to live a life hounded by collectors. The federal government had enacted laws such as the Fair Debt Collection Practices Act (1978) and the Fair Credit Reporting Act (1970) that, along with a knowledge of the statutes of limitations, should inform debtors as to their rights and generally promote organized debt collection.

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