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What Is the Statute of Limitations on Debt?

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Are debt collectors hounding you over debts that fell into collections years ago? Before you throw up the white flag and prepare to make a payment, do a bit of research first. Even if you legally owe the debt, the debt collector may not be able to sue you to collect on it — that’s because debt collectors only have a limited time to file a suit against you. Once this time frame — known in “legalese” as a “statute of limitations” — expires, collectors cannot file a lawsuit against you to recoup the debt.

In fact, making a payment on a debt after the debt’s statute of limitations has run can do more harm than good, which we’ll explain this guide.

What is the statute of limitation on debt?

The statute of limitations on debt is the length of time that debt collectors have to sue you to collect old debts. Once the statute of limitations passes, debt collectors lose a bit of their power. Collectors who cannot sue you cannot win a court order for repayment. Without a court order, collectors can’t garnish your wages or place a lien against your property — they can only collect what you agree to pay.

Of course, establishing the statute of limitations on an old debt can be tricky. You might want to consult a consumer debt attorney or credit counselor who is familiar with your state’s legal codes and can help you suss it out. As a leg-up, we’ve provided a map above with all the statutes of limitations by types of debt for all states in the U.S.

You can find nonprofit credit counseling agencies through the National Foundation for Credit Counseling (NFCC) and a consumer law attorney through the National Association of Consumer Advocates (NAC).

“There are all sorts of factors involved in establishing the statute of limitations. When was your last payment? What are the records on it?” explained Ira Rheingold, executive director of NACA.

Just because a lender can’t legally sue you for a debt doesn’t mean it will stop them from trying, and you may get served with a lawsuit anyway. In that case, Rheingold advises consumers to seek legal help right away.

“If you are served with a court complaint about a debt, the worst thing you can do is ignore it,” he added. “The best thing you can do is find an attorney to help you.”

Time-barred debts: Defined

If a debt has passed the statute of limitations in your state, it is considered a time-barred debt. You legally still owe time-barred debts, and collectors can still attempt to collect the debts by calling you or mailing you letters.

However, these collection attempts don’t have any teeth because you can’t be taken to court for them. Even so, many consumers feel as if making a payment is the best way to get the debt collector off their back, or they may feel as if making a payment is the best way toward improving their credit.

Both of these assumptions, unfortunately, are wrong and could do more harm than good for your financial picture.

When old debts become ‘zombie debts’

Think carefully before you make a payment on an old debt — in some states, a small debt payment, or even an agreement to pay a time-barred debt, can reset the statute of limitations. That’s one reason why debt collectors will keep calling to collect on debt even after the statute of limitations has passed, encouraging debtors to make even a tiny payment to their account.

So much as a $1 payment on a time-barred debt can restart the clock on the statute of limitations. When a formerly time-barred debt comes back to life, it is called a Zombie debt.

“Once a debt is revived, collectors may have the right to sue you again,” said Rheingold.

If collectors contact you about old debts, don’t let them talk you into bringing a time-barred debt back to life. These are steps you should take before making any agreement with a debt collector.

What to do if a debt collector calls you about an older debt

Ask if the debt is time-barred/beyond the statute of limitations

The debt collector must answer truthfully if they know whether a debt is time-barred. However, a debt collector may not know the answer or may decline to answer the question. If you’re not sure whether a debt is time-barred, act as if it is until you can get professional counsel. An attorney or a credit counselor can help you make the right choice about whether to repay the debt.

Do not agree to a payment plan

Even a promise to repay an old debt could reset the statute of limitations. Before agreeing to any sort of repayment plan, talk to a nonprofit credit counselor or an attorney.

Do not make a partial payment on the debt

Making a small payment towards your debt may reset the statute of limitations on debt.

Write a cease and desist letter

Consumers can write to debt collectors to ask collectors to cease all forms of communication. You can use these templates to help you write to collectors. Once you write to the collectors, you shouldn’t hear from them again.

Seek legal help if necessary

In the event that a debt collector sues you, don’t ignore the lawsuit. If you don’t show up in court, the collector will likely win a default judgement against you. If you’re sued, seek legal help from a consumer advocacy attorney. People who cannot afford legal help can seek out free legal assistance from local Legal Aid.

Learn more: Should I pay off old debts or new debts first?

Although paying off time-barred debts isn’t necessary or helpful in most cases, it can feel urgent. Calls from debt collectors may push you to prioritize old debts over new debts. But if you must decide between paying current debt accounts and paying off old debts, it makes sense to focus on current debts.

Here’s why: Unfortunately, paying off old debts, especially time-barred debts, is usually not the best use of your money. Once a debt falls into collections, the damage to your credit score is done. Over time, the negative effect of the collections account will lessen. On the other hand, paying your current debts on time and in full will help you build your credit score.

Paying off old debts probably won’t help your credit much

Once an account falls into collections, the damage to your credit is as bad as it gets. Only time and adding good information on your credit report, like on-time payments on new accounts, will help your credit score recover. Remember: old debts will fall off your report after the 7-year mark, and if the debt has passed its statute of limitations, the collections agency can no longer sue you legally.

Paying off the old debt won’t remove it from your credit report

Unpaid debts remain on your credit report for seven years after they’ve gone into collections. Even if you pay the old debt, lenders will see that the debt went into collections.

In some cases, a new lender may recommend that you pay off an old account, so you can take out a new loan. In that situation, Rheingold recommends consulting a credit counselor first — “If paying off a debt would actually help your credit score, you might want to take care of it, but I would talk with a credit counselor first.”

Even if your old debt is still collectible (meaning you can be sued for it), you’ll want to address new debts before old debts. Only start addressing old debts if you have extra cash in your budget.

Ways to handle old debts that are not yet time-barred

One method for dealing with debts in collections is to negotiate a settlement offer. Depending on the age of your debt and your financial situation, many debt collectors will settle a debt for pennies on the dollar.

When it comes to settling old debts, Rheingold warns that consumers should watch out for debt settlement companies. Debt settlement companies negotiate settlement offers for consumers that have debts in collections. After a successful settlement, the company charges you a percentage of the savings or a percentage of the original debt.

However, although debt settlement seems like a valuable service, debt settlement companies are not experts in debt law, and their actions could lead to reviving a time-barred debt. Even worse, the company’s actions may leave you owing more than you owed in the first place.

If you wish to deal with old debts, and you have the financial means to pay them off, consider consulting with a non-profit credit counselor or a debt settlement attorney before engaging with collectors.

Different types of debt, different statute of limitations

The time at which a debt becomes time-barred depends on several factors, including the type of contract governing debt. These are the five types of contracts that may govern debt.

Oral contracts

Oral contracts are spoken agreements between two parties. Simply promising to repay an old debt could create a new oral contract.

Written contracts

Most debts are loans with written contracts. The statute of limitations on written contracts will govern most debts.

Open-ended accounts

In some states, open-ended accounts (including credit cards or retail credit cards) are treated differently than other forms of debts with written contracts. In those states, a unique statute of limitations governs open-ended accounts.

Installment sales contracts

Some debts, such as auto loans taken out from a dealership, may be governed by the Universal Commercial Code (UCC), rather than a state’s contract law. If a debt is considered an installment sales contract rather than a written contract, the UCC’s statute of limitations governs that debt.

Promissory notes

Promissory notes are written contracts in which the person paying a debt “promises” to pay the debt; many mortgages are promissory notes. In general, the statute of limitations on promissory notes is longer than the statute of limitations on other types of contracts.

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College Students and Recent Grads, Pay Down My Debt

Sample Goodwill Letter to Remove a Late Student Loan Payment from Your Credit Report

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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If you’ve pulled your credit report recently and discovered that there’s been a late payment reported on your student loans, you might be wondering what you can do to recover. Late payments can damage your credit, especially if you stop paying your loans for an extended period of time.

We’ve already gone over the repercussions of delinquency and default, but now let’s take a look at another method of repairing your credit report — sending a goodwill letter to your creditor.

What is a goodwill letter?

A “goodwill letter” is a simple way to repair your credit report, and it can be used for both federal and private loans. The purpose of a goodwill letter is to restore your credit to good standing by having a lender or servicer erase a lateness on your credit report.

Typically, those who have experienced financial hardship due to unexpected circumstances have the most success with goodwill letters. They allow you to ask if your student loan servicer can empathize with the situation that caused the lateness and erase it from your report.

It can also be used when you think the late payment is an error — for example, if you were in deferment or forbearance during the time of the late payment and weren’t required to make any payments, or if you know you’ve never been late on a payment before.

What makes a convincing goodwill letter?

If you’ve been looking for a goodwill letter that will work well, we have some tips on what you should include in your letter:

1. An appreciative tone

It’s important that the entire tone of your letter comes off as thankful and conscientious. If you were actually late on your payments due to extenuating circumstances, taking an angry tone probably won’t help your case.

2. Take responsibility

You want to be convincing and honest. Take responsibility for the late payment, and explain why it happened. They need to sympathize with you. Saying you just forgot isn’t going to win you any points.

3. A good recent payment history

Besides sympathy, you want to gain their trust that you will continue to make payments. If your lender sees payments being made on time before and after the period of financial hardship, it might be more willing to give you a break. When you have a pattern of late payments, on the other hand, it’s more difficult to convince them that you’re taking this seriously.

4. Proof of any errors and relevant documents

If you’re writing about a mistake that occurred, still be friendly in tone, but back up the errors with documentation. You’ll need proof that what you’re saying is true. Unfortunately, errors are often made on credit reports, and it may have been a clerical error on behalf of your servicer. If you have any written correspondence with them, you’ll want to include it.

5. Simple and to the point

The last thing to keep in mind is to craft a short and simple letter. Get straight to the point while telling your story. The people reviewing your letter don’t want to read an essay, and the easier you make their lives, the better.

Sample goodwill letter No. 1

Below is a sample goodwill letter for student loans to give you an idea of how to structure your own:

To whom It may concern:

Thank you for taking the time out of your day to read this letter. I just pulled my credit report, and discovered that a late payment was reported on [date] for my account [loan account number].

During that time, my mother fell terminally ill, and I was the only one left to care for her. As such, I had to leave my job, and my savings went toward her health care expenses. I fell on very rough times after she passed away, and was unable to make my student loan payments.

I realize I made a mistake in falling behind, but up until that point, my payment history with you had been spotless. When I was able to gain employment once again, I quickly resumed paying my student loans, making them a priority.

I’m not proud of this black mark on my record, but it’s the only one I have, and I would be extremely grateful if you could honor this request to remove the lateness from my credit report. It would help me immensely in securing other lines of credit so that I can further improve my credit score.

If the lateness cannot be removed entirely, I would still be appreciative if you could make a goodwill adjustment.

Thank you.

Sample goodwill letter No. 2

If you’re writing a letter because the lateness on your credit report is inaccurate, then try something similar to this:

To whom it may concern:

Thank you for taking the time to read this letter. I recently pulled my credit report and found that [Loan servicer] reported a late payment regarding my account [loan account number].

I am requesting that this late payment be assessed for accuracy.

I believe this reporting is incorrect because [list the supporting facts you have]. I have included the documentation to prove that [I made payments during this time / that my loans were in forbearance/deferment and didn’t require any payments].

Please investigate this matter, and if it is found to be inaccurate, remove the lateness from my credit report.

Thank you.

Make sure you provide as many personal details as possible — without making the letter too long, of course. You should also include your name, address and phone number at the top of the letter in case your loan servicer needs to reach you immediately.

Where to send your goodwill letter

Now that your letter is written, it’s time to send it. This can be done either by fax or by mail. Most student loan servicers have their contact information on their website, but you can also look on your billing statements to see if they specify a different address.

Additionally, you can try calling the credit bureau where the lateness was reported to see if they can give you the contact information you need.

It’s important to mention that goodwill letters are not a means to immediate success. Unfortunately, it often takes several attempts to correspond with servicers and lenders to get them to acknowledge that they received a letter from you.

Your best bet is to get a personal contact at the company who has the power to erase the late payment from your credit report.

If all else fails, try as many different communication methods as possible. Phone, mail, fax, live chat (if your servicer offers it) and email them. Several people who have tried this report that it’s possible to wear your servicer down with a decent amount of requests.

Addresses and fax numbers to try

Here are some addresses and fax numbers for several of the larger servicers, as listed on their websites. Again, it may also be worth phoning your servicer to get the name of someone there that can help you. If you have federal student loans, you can also check this Federal Student Aid page for more contact information.

Nelnet

Documents related to deferment, forbearance, repayment plans or enrollment status changes:

Attn: Enrollment Processing

P.O. Box 82565

Lincoln, NE 68501-2565

Fax: 877-402-5816

Great Lakes

Great Lakes

P.O. Box 7860

Madison, WI 53707-7860

Fax: 800-375-5288

Sallie Mae

Sallie Mae

P.O. Box 3229

Wilmington DE 19804-0229

Fax: 855-756-0011

Navient

For anything other than federal loans, check here

Navient – U.S. Department of Education Loan Servicing

P.O. Box 9635

Wilkes-Barre, PA 18773-9635

Fax: 866-266-0178

Cornerstone

P.O. Box 145122

Salt Lake City, UT

84114-5122

Fax: 801-366-8400

FedLoan

For letters and correspondence

FedLoan Servicing

P.O. Box 69184

Harrisburg, PA 17106-9184

Fax: 717-720-1628

EdFinancial

For FFELP and private loans, check here

Edfinancial Services

P.O. Box 36008

Knoxville, TN 37930-6008

Fax: 800-887-6130

Documents to include with your goodwill letter

Don’t let your efforts go to waste by forgetting to send documentation with your letter. Here’s a quick checklist of what you should include:

  • The account number for your loan
  • Your name, address, phone number and email
  • Statements showing proof that you paid (if you’re disputing a late payment)
  • Documentation showing that you’ve paid on time at all other points aside from when you experienced financial hardship (if that’s the case)
  • Identifying documentation so your servicer knows you sent the request

Also note that if you’re mailing anything, you should send it by certified mail with a receipt requested. This way you’ll know whether your letter made it to the servicer.

What to expect after submitting your goodwill letter

Once you submit your goodwill letter, you should hear back from your creditor with a decision in a few weeks. If two to three weeks have passed without word, follow up via email or phone call.

As you know, there’s no guarantee that your goodwill letter will work. The decision to remove a negative mark from your credit report is entirely in the hands of your creditor.

If your creditor rejects your petition, you’ll have to accept the ding on your credit report and take other steps to boost your credit. But if they agree to repair your credit, you should see the delinquency removed from your report and your credit score increase as a result.

A higher credit score can make life a lot easier, whether you want to take out a loan, open a credit card or, in some cases, even rent an apartment. For student loan borrowers, a strong credit score also opens the door to student loan refinancing, a savvy strategy that lets you restructure your debt, possibly changing your monthly payment and potentially saving money on interest.

If your credit score rebounds and you want to take proactive steps to conquer your student debt, refinancing could be the answer you’ve been looking for, so long as you no longer need the protections that come with federal loans.

Either way, though, make sure to keep up with student loan payments so you don’t end up with a delinquent account dragging down your newly repaired credit score.

Resources

If you’re interested in exploring goodwill letters further — and the results that others have had — check out these websites:

  • Ed.gov: They cover disputes, what to do about them and how to go about rectifying them here.
  • ConsumerFinance.gov: If you have loans with a private lender, and your lender had reported you as late when you weren’t, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) to see if they can help you.
  • myFico Forums: The forums on myFico are populated with helpful individuals that might be able to give you contact information for certain servicers. There are some people reporting success with goodwill letters, and they may be willing to share their letters with others upon request.

It’s worth the time to write a goodwill letter

If you’ve discovered that a late payment has been reported on your credit, and it’s because you fell on hard times or is inaccurate, it’s worth trying to get it erased. These dings on your credit are there to stay for seven to 10 years. That’s a long time, especially if you’re young and hoping to buy a house or a car in the near future. It’s a battle worth fighting.

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Debt, Its Emotional Toll and How to Tackle It

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Debt can feel overwhelming, and studies are increasingly showing that it can lead to a decrease in happiness and life satisfaction, anxiety and even physical symptoms like headaches or loss of sleep.

A study of more than 1,000 student loan borrowers — conducted by Student Loan Hero, which, like MagnifyMoney, is owned by LendingTree — found that:

  • More than 61% of respondents admitted that they’re afraid that their student loan debt worries are spiraling out of their control.
  • More than 70% said they suffer from headaches because of their debt concerns.
  • Some 64.5% of respondents have lost sleep over their debt.
  • 67% reported physical symptoms of anxiety that stemmed from the stress of their student loans.

The study showed a direct correlation between having debt and detracting from happiness. In fact, results revealed that carrying student loan debt is nearly as significant as income when it comes down to predicting financial concern and evaluating life satisfaction.

What studies show about how debt affects your health

Indeed, money can buy happiness, but how much debt one has also weighs heavily into the equation, according to a study from Purdue University. An online college alumni sample of 2,781 individuals from the United States revealed that student debt could take a significant toll on one’s life satisfaction over the long term.

Another survey conducted by the Harris Poll on behalf of the American Institute of Certified Public Accountants (AICPA) showed that 56% of Americans with debt admitted that it negatively impacted their lives. Twenty-eight percent of the 1,004 American adults surveyed said their debt caused stress about their everyday financial decisions, and 21% said it caused tension with their partner.

It may be that such accomplishments as a promotion at work may be marred by knowing your debt is eating up your higher earnings. High debt may also be such a financial burden that borrowers are unable to save for retirement, for emergencies or even such pleasures as a vacation.

High-rate debt can be particularly difficult to carry. Seeing your monthly payments largely going toward fees can make you feel as though you’ll be trapped in debt forever. And if that debt isn’t allowing you to save money, your stress may only grow if you’re suddenly struck with a financial emergency that causes you to take on new debt.

6 tips to dealing with your debt

If you’re dealing with debt and it’s taking a toll on your health, what can you do?

“The first thing a person needs to do is take a close look at how they got into debt in the first place,” advised Carolyn McClanahan, M.D., CFP, who began her career as a physician and is now founder of a financial planning group called Life Planning Partners LLC, based in Jacksonville, Fla. “They should identify what triggered the situation or any bad habits that might have led to their debt, so that they don’t repeat those things going forward. Then, they need to make an actionable plan to figure out how to get out of debt.”

Consider these tips that could help you better handle your debt.

1. Thoroughly research your options

When tackling your debt, it pays off to research your options for dealing with debt. For example, federal student loans come with borrower protections that may help you if you’re struggling with money. You may be eligible for an income-driven repayment plan, which would adjust your monthly payments based on your income. You may also qualify for student loan forgiveness or have the opportunity to defer payments for a period of time.

If you have a mortgage, you could extend your repayment term without refinancing. This is known as mortgage recasting. By extending your repayment term, you could lower your monthly payments, freeing up cash to deal with debts that are a higher priority.

Credit card debt doesn’t have to be such a burden, either. If you lost your job, it may be beneficial to call up your credit card issuer. You may be able to get on a hardship program that reduces your payments for a time. Or, if you have decent credit, you may qualify for a balance transfer credit card with a promotional 0% APR. For a fee, you could move your credit card debt onto your new card to avoid interest charges for a period of time. Pay off that debt before the promotional period ends and you could save a lot of money on interest.

2. Don’t be afraid to negotiate

Many people fail to recognize that there are many instances where you can negotiate and in turn, lower your debt. Take medical bills, for example.

“It can really help to negotiate with the medical provider,” said McClanahan. “If you’re willing to pay them real money over time, you can end up paying pennies on the dollar of what you own,” she said. In addition to negotiating, McClanahan suggested asking hospitals or health centers whether they have any financial assistance programs that you might qualify for.

Furthermore, if you’re accepting a new job offer, don’t be afraid to negotiate a higher starting salary, which in turn could help you windle your way out of debt faster. Research the job market and consider making a compelling case as to why you deserve a higher salary.

3. Take it one debt at a time

If your debt is stretched across multiple credit cards or loans, you may be overwhelmed just by the thought of them. But if you can focus your attention on making extra payments on just one debt, it could help you see some quick wins.

“You ideally want to start by paying off the debt with the highest interest rates first,” McClanahan said. Repaying the debt with the highest rate helps you reduce how much interest you pay over time. Often, this means you’ll focus extra payments toward a credit card balance. Once that debt is paid off, you start making extra payments on your debt with the next-highest rate.

However, you may instead choose to pay off your debt with the lowest balance. This would result in a fast win that will motivate you to keep making extra payments on your debt.

4. Consider therapy

Seek the help of a psychologist or another mental health expert if your concerns about debt are negatively impacting your day-to-day life. A licensed health expert can help you confront your anxieties head on and offer strategies for dealing with them effectively. Also, reach out to your personal network and let those close to you know that you could use their support. It helps to know that you’re not in it alone.

Low-income individuals may want to seek the help of a sliding scale therapist, who will adjust their fees to make therapy more affordable. This can be found on mental health directories like GoodTherapy.org. There are also clinics that provide low-fee or free mental health services. To find a clinic near you, visit MentalHealth.gov.

5. Enlist the help of a credit counselor or financial planner

Sometimes, it helps to get an outside perspective on your debt, or at least talk to someone who can reveal your options. A credit counselor or financial planner can help you take steps toward getting your finances in order or develop a game plan for getting back on track, McClanahan said.

The National Foundation for Credit Counseling is a nonprofit financial counseling organization that provides a variety of free services, including counseling on credit and debt, bankruptcy and student loans. If you’re interested in hiring a financial planner, you could use the National Association of Personal Financial Advisors to find one.

Outside help could help you better weigh the pros and cons of your options and guide you as you work on your debt.

6. Focus on improving your credit score

Take steps to rebuild your credit and improve your credit score, which in turn, could give you access to more credit in the future. For starters, focus on implementing a plan for paying off debt, and work to keep your balances low on credit cards. Keep in mind that improving your credit score requires small, responsible actions over time, so be patient and set long-term objectives. For more tips on how to improve your FICO score, take a look here.

Indeed, accumulating debt can certainly take an emotional toll and negatively impact your overall life satisfaction. However, you can take simple steps to pay down debt and turn your financial situation around. No financial situation is permanent, and with some patience, persistence and implementing of best practices, you can find yourself back on the path to financial recovery. So take a deep breath, keep your emotions at bay and work on tackling your debt in a practical manner.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Renee Morad
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