Delinquent debts have a certain time limit, known as the statute of limitations, during which you can be sued by a debt collector in court to settle the debt. Once that time limit is up, your unpaid debts become time-barred and you are legally protected from lawsuits.
This time limit can be tricky for consumers to figure out. The length of the statute of limitations can change depending on state law and the type of debt. Certain actions can even cause the statute of limitations clock to reset.
Here’s how debts become time-barred, and what it means for the consumer.
When Does Debt Become Time-Barred?
State law determines the statute of limitations for unpaid debts. Usually, the clock starts ticking when you fail to make a payment on time. You can be sued by a debt collector, which could result in a court judgment against you that garnishes your wages or takes money from your bank account or tax refund.
To determine the statute of limitation for different kinds of debts in your state, you can consult an attorney or your state attorney general’s office.
What Consequences Remain After a Debt Becomes Time-Barred?
Once your debt is time-barred, it simply means debt collectors can’t legally sue you. However, you are not protected from other consequences:
- Debt collectors can still contact you about time-barred debts and attempt to collect on them. They may not tell you that your debt is time-barred. So, it’s important to do your research before you pay an old debt.
- Old debts still affect your credit. The statute of limitations does not protect your credit report or credit score, and negative items like late payments or accounts in collections can negatively affect your credit for up to seven years, whether or not the debt is time-barred.
Should You Pay a Time-Barred Debt?
If you are contacted about a time-barred debt, it’s up to you whether to pay it or not. You have options, but each option has different consequences. Consider hiring a debt attorney before you choose the option that’s best for you:
- Don’t pay anything: you can safely ignore the debt without getting sued (unless a debt collector tries to sue you anyway, which we’ll get to in a second). Debt collectors can still legally contact you to collect on the debt unless you formally tell them to stop, and the debt can still affect your credit.
- Make a partial payment: the debt collector may try to convince you to make a partial payment. In many states, doing so can “revive” the debt and the statute of limitations can start over. This means you can now be sued in court.
- Pay off the debt in full: if the debt is legitimate, you might want to settle it completely even if you can’t be sued. Some debt collectors may be willing to negotiate a lower settlement amount in the form of a lump-sum payment or a payment plan. Make sure to get any agreement you have with the debt collector in writing.
What Should You Do If You’re Sued for a Time-Barred Debt?
Even if the debt is time-barred, do not ignore the lawsuit. Failing to appear in court could result in a court judgment against you. You can consult an attorney on your options.