The Statute of Limitations on Debt Collection
Protection From a Collection Agency Lawsuit Over Bad Debt
Oct 22, 2009
Many consumers pay debts they cannot afford without ever realizing that a statute of limitations on debt collection (SOL) exists to protect them from being chased forever by bad debt.
How Long Is The Statute of Limitations?
The SOL for debt collection varies by state and ranges from 3 years to 20 years. It begins 180 days after an individual misses the first payment on a debt. This is known as the date of first delinquency. The average SOL is around four years. Individuals should consult an SOL chart to determine the SOL in their state of residence for debt collection.
The SOL of a debt should not be confused with the debt's reporting period, which is the amount of time an entry can legally appear on a consumer's credit file.
Not All Bad Debts Are Covered Under the Statute of Limitations for Debt Collection
The SOL applies to most debts but not all. The SOL for debt collection by state covers:
- Credit card debt
- Medical debt
- Lines of credit
- Unsecured personal loans
- Deficiency balances
- Payday loans
- Other forms of unsecured debt
The SOL does not apply to:
- Judgments
- Bankruptcies
- Tax liens
- Car repossessions
- Foreclosures
- Secured loans
An Expired Statute of Limitations Can Prevent a Collection Agency Lawsuit
A collection agency may still file a lawsuit over a debt even if the SOL on debt collection has expired in the consumer’s state of residence. The catch, however, is that the bad debt is no longer legally enforceable. Unfortunately, a court has no way of knowing this if the consumer does not bring the SOL to the attention of the court.
Because of this, it is imperative that any individual facing a collection agency lawsuit on an expired debt respond to the initial court summons and appear in court to defend himself. Without a response from the consumer, a debt collector will be awarded a default judgment on a debt which can result in an individual’s wages being garnished--even if the SOL on the bad debt had expired.
Responding to the court summons and notifying the collector that the debt is outside the state SOL will usually result in the lawsuit being dropped. A collection agency has no incentive to lose money, and this is what will occur if it pursues a lawsuit when there is a good chance that the consumer will show up in court to present the SOL to the judge.
The Fair Debt Collection Practices Act prevents a judgment from being levied against any consumer involved in a lawsuit with a collection agency who can successfully prove the expiration of the SOL on a debt.
Contact With Debt Collectors Following the Expiration of the SOL
A consumer may opt to file a full Cease and Desist letter with any collection agency who currently holds his or her debt following the expiration of the SOL. This prohibits any contact from debt collectors following the date on which the letter is received.
Sending a Cease and Desist letter, however, often results in the debt being sold to another collection agency which may place a negative notation on the consumer’s credit report, further injuring the individual’s credit score. A consumer may opt to dispute the debt following the expiration of the SOL in order to facilitate its removal from his or her credit report.
Although the SOL on a debt may have expired, a collection agency may still attempt to collect the debt through telephone calls, letters, and debt settlement offers. The consumer still technically owes the debt, it simply cannot be enforced via a lawsuit.
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