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 are spoken agreements between two parties. Simply promising to repay an old debt could create a new oral contract.
Most debts are loans with written contracts. The statute of limitations on written contracts will govern most debts.
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 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.