What Is The Statute Of Limitations On Debt And Judgments

What Is The Statute Of Limitations On Debt And Judgments

This BLOG On What Is The Statute Of Limitations On Debt And Judgments Was UPDATED On January 31st, 2018

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 financial situation does not improve, many of credit accounts go into default and into collections

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 law suit
    • 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 debt has not expired
  • If the statute of limitations on 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
    • Equifaxcan 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,  statute of limitations on old debt varies from state to state
  • If 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 statute of limitations is 10 years for an old written debt, the credit reporting agencies need to remove it from 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 credit report to collect on their delinquent debt
  • Most bad debt can only remain for 7 years from the date of last activity
  • 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

Every consumer who has prior outstanding debts or judgments should become familiar with 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 has a column for DLA, which mean that it is the date of last activity
  • This DLA is what sets the starting clock for 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 makes a $5 dollar, this reactivates the DLA
  • The statute of limitations period gets a fresh start
  • Bottom line is not to pay or contact old debt collectors or creditors and hope that 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 statute of limitations.

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

  • All government loans such as federal student loans are not exempt from statute of limitations laws either
  • Child support and/or alimony payments are normally not exempt from 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

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 needs 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

Mortgage 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 needs to be paid in full to qualify for mortgage loans.  Home Buyers and Homeowners who need to qualify for mortgage with direct lender with no lender overlays can contact us at The Gustan Cho Team at Loan Cabin at 262-716-8151 or email us at gcho@loancabin.com.

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