What Is The Statute Of Limitations On Debt And Judgments

2

This BLOG On What Is The Statute Of Limitations On Debt And Judgments Was UPDATED And PUBLISHED On January 30th, 2020

What Is The Statute Of Limitations On Debt And Judgments

Statute Of Limitations On Debt:

Thousands of hard-working people do go periods of hard financial times. They lose their jobs, get demoted, or the company they work for shuts down or goes out of business.

  • Unfortunately, the outcome of financial hardships often leads where people cannot pay their debts on time
  • Many get behind on credit obligations
  • When the financial situation does not improve, many credit accounts go into default and into collections

In this article, we will discuss and cover What Is The Statute Of Limitations On Debt And Judgments.

Filing Bankruptcy Versus Waiting Out Statute Of Limitations On Debt

Many folks have unpaid and/unsatisfied debt that has been aged and are contemplating filing bankruptcy:

  • The thing is that bankruptcy can be avoidable if old debts have been aged
  • Many old debts may have passed the statute of limitations on debt
  • Statute of limitations on debt is a time period where a debt collector or creditor has their chance to collect a debt

Debt collectors can use whatever means allowed by law such as the following:

  • Sending demanding letters
  • Calling
  • Filing a lawsuit
  • Getting a deficiency judgment issued in court

Once the statute of limitations expires consumers are no longer obligated to pay the old debt:

  • In a sense, it is an expiration period for uncollected debt
  • Before deciding to pay an old debt or judgment, make sure that the statute of limitations on a debt has not expired

If the statute of limitations on a debt has expired, consumers are not obligated to pay the debt.

Credit Reports

Statute of limitations period on old debt is different than the derogatory credit reporting period.

By law, the three credit reporting agencies:

  • Transunion
  • Experian
  • Equifax can only report derogatory credit for a period of 7 years from the date of the last activity

They only report derogatory credit for a period of 7 years from the date of the last activity:

  • However, the statute of limitations on old debt varies from state to state
  • If the statute of limitations on a delinquent debt expires in 5 years from the date of last activity, the credit reporting agencies can still report it for another 2 years
  • And after 7 years from the date of last activity needs to fall off from all of three credit reporting agencies
  • On the flip side, if the statute of limitations is 10 years for an old written debt, the credit reporting agencies need to remove it from the credit report after 7 years from the date of last activity
  • But the creditor and/or debt collector still has 3 years to go after deletion from the credit report to collect on their delinquent debt
  • Most bad debt can only remain for 7 years from the date of last activity

The exception is Chapter 7 bankruptcy:

  • Chapter 7 Bankruptcies are reported for 10 years from the discharge date
  • Tax liens can be reported up to 15 years from the issuance date
  • The credit reporting time period limit is set by the FCRA, stands for the Fair Credit Reporting Act

The FCRA has nothing to do with the statute of limitations on debts.

Mechanics Of The Statute Of Limitations On Debt

What is the mechanics of limitation of debt

Every consumer who has prior outstanding debts or judgments should become familiar with the statute of limitations rights for consumers.

  • The statute of limitations start date is the date of last activity on credit account
  • The date of last activity is also referred to as DLA which is The date it was last reported late on credit report
  • The three credit reporting agencies have a column for DLA, which mean that it is the date of last activity
  • This DLA is what sets the starting clock for the statute of limitations
  • Making a payment on an old debt, the statute of limitations period is restarted
  • The SOL start clock starts all over again
  • Even if consumers make a $5 dollar, this reactivates the DLA
  • The statute of limitations period gets a fresh start

The bottom line is not to pay or contact old debt collectors or creditors and hope that the statute of limitations period expires.

Note Statute Of Limitations On Debt

Please note that not all debt collectors will stop their debt collection activities just because the statute of limitations period has expired.

  • Debt collectors are ruthless and will try to get consumers to pay
  • They will still try to collect on debts that they know the SOL period has expired
  • Consumers need to tell them they are aware of their rights and that the statute of limitations period has expired
  • Every state has its own statute of limitations expiration period

We will cover this on our next blog

Debts Exempt From Statute Of Limitations On Debt

Not all debts are exempt from the statute of limitations.

State and federal income taxes are not exempt from the statute of limitations laws.

  • All government loans such as federal student loans are not exempt from the statute of limitations laws either
  • Child support and/or alimony payments are normally not exempt from the statute of limitations laws in most state
  • Some debts don’t have a statute of limitations
  • This includes federal student loans, child support in some states, and income taxes

Consumers cannot use the statute of limitations as a defense in a lawsuit regarding any of these.

Judgments And Tax Liens

What are the judgments and tax liens?

Mortgage Borrowers can qualify for home loans with outstanding judgments and tax liens.

  • However, need a written payment agreement with the judgment creditor and/or Internal Revenue Service
  • Three months of payments need to have been made
  • Three months canceled checks and/or bank statements needs to be provided to the lender
  • Statute Of Limitations On Judgments depends on the state
  • Most states have 10 years statute of limitations on judgment

However, judgment creditors can renew the judgment after the SOL runs out.

Qualifying For Home Loans With Bad Credit With Lender With No Overlays

Borrowers do not have to pay outstanding collections and charge off accounts to qualify for home loans. Many borrowers believe that outstanding collections, charge offs, judgments, and tax liens need to be paid in full to qualify for mortgage loans.  Home Buyers and Homeowners who need to qualify for a mortgage with a direct lender with no lender overlays can contact us at Gustan Cho Associates at 262-716-8151 or email us at gcho@gustancho.com.

2 Comments
  1. Joe Tee says

    Hi:I live in Florida. AmEx had a judgement against me in 2018. They didn’t pursue the judgment then wrote-off the debt just last month. Now a new debt collector says they bought the debt.  Can the new debt collector move on the AmEx judgment, or do they have to go to take me to court? And if so how does the SOL play out? My last payment was in 2014.Thanks,Joe T

    1. Gustan Cho, NMLS 873293 says

      Statute of limitations are normally 10 to 20 years depending on the state. I think in Florida, it may be 20 years. The judgment creditor has the option to renew the judgment after it runs its statute of limitations for another 20 years. If you were issued a judgment, that judgment can be sold and the owner of the judgment can just let it sit and/or try to enforce the judgment. You cannot qualify for any mortgage with an outstanding judgment. You either need to pay the outstanding judgment and/or enter into a written payment agreement. Feel free to contact us at 272-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com.

Leave A Reply

Your email address will not be published.

Call Now ButtonCALL NOW