Does Debt Ever Expire?

Death and taxes may be forever but debt isn’t.

Debt does eventually expire. There are some facts worth knowing before worrying yourself to death about bill collectors and credit card companies seeking money from you until the end of time.

While delinquent consumer debt can seem like it’s something that’s going to follow you around for a lifetime, there are time limits to how long creditors can go after unpaid bills.

Here are some facts about unpaid debt and how long it lasts:

A limit to lawsuits

A debt is also called a “promissory note,” giving creditors the right to collect it if it isn’t paid or is paid late.

To pressure consumers to pay their debts, creditors can report nonpayment and other information to the credit bureaus. They can also sell the debt to a collection agency or even sue the consumer.

Legal time limits however, limit those collection tactics. There are two statute of limitation clocks that protect consumers who have defaulted. One clock limits how long a creditor has to file a lawsuit against someone for an unpaid debt. This same clock applies to how long debt collectors can legally try to collect unpaid bills.

Once the statute of limitations has passed for a lawsuit-based collection, the charge is called “time-barred” and the creditor is no longer allowed to sue for collection. State laws where the consumer lived when the debt was incurred govern when the debts become time-barred. They range from three to 15 years, with most states allowing six years for lawsuits.

There are some time-barred debt exceptions. Federal student loans and tax liens will never be time-barred.

Credit reporting clock

There’s also a clock ticking for how long unpaid debt can be reported on credit reports.

The Fair Credit Reporting Act has limits on the length of time an unpaid debt can remain on a consumer’s credit report. As for Chapter 7 or Chapter 13 bankruptcies, they can remain on report up to 10 yrs. Most other derogatory items drop off at 7 years.

Nothing can restart the credit reporting clock once the maximum allowed number of years is reached. The item must then be permanently removed from the credit report.

What if you’re sued for a time-barred debt?

Even if you’re sure that the statute of limitations has run out on your collections and that you can’t be sued for a time-barred debt, you shouldn’t ignore a lawsuit if one is brought against you. In fact, the Federal Trade Commission recommends not ignoring a lawsuit. If you do, a collector could get a court judgment against you and possibly have your wages garnished, have access to your bank account or tax refund. Instead of ignoring it, you should respond and consider talking to an attorney.

You can tell the judge that the amount owed is time-barred, and provide written verification that shows the date of your last payment. The lawsuit will be dismissed if the judge decides it is time-barred.

It’s illegal for a collector to sue you or threaten to sue you over a time-barred collection. You can contact an attorney to sue on your behalf, file a complaint with the FTC or your state Attorney General.