In this blog, we will cover and discuss the statute of limitations on debt and judgments. Thousands of hard-working people do go through 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.
What is the Statute of Limitations on Debt
The statute of limitations on debt refers to the maximum period a creditor can file a lawsuit to recover a debt. The creditor loses the right to the debt. However, they may still attempt to collect it by contacting the debtor or reporting it to credit agencies.
The statute of limitation must be paused or “tolled” under certain circumstances for the creditor to get more time to collect on the debt.
The statute of limitations varies on the type of debt and the jurisdiction (i.e., the laws of the state or country where the debt was incurred). In the United States, for example, the statute of limitations typically ranges from three to ten years for most debts, including credit card debt, medical bills, and personal loans.
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
How Collection Agencies Collect Outstanding Debts
Individuals should consult with a legal professional or refer to the specific laws in their jurisdiction to determine the statute of limitations for their debts. Additionally, remember that the statute of limitations does not extinguish the debt itself; it only limits the creditor’s ability to enforce it through the court system. 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. Click here to get help related to collect outstanding debts
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
Statute of Limitations on Debt: How Long Do Derogatory Tradelines Stay on Credit Reports
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. After 7 years from the date of last activity needs to fall off from all of three credit reporting agencies.
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 the last activity. The exception is Chapter 7 bankruptcy.
How Long Do Bankruptcy and Tax-Liens Be Reported on Credit Reports
Chapter 7 Bankruptcies are reported for 10 years from the discharge date. Chapter 13 Bankruptcies are reported for 7 years. Tax liens can be reported up to 15 years from the issuance date. Judgments are reported for seven years from the judgment award date. The credit reporting time period limit is set by the FCRA, which stands for the Fair Credit Reporting Act. The FCRA has nothing to do with the statute of limitations on debt.
Mechanics on Statute of Limitations on 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 the credit account. The date of last activity is also referred to as DLA which is The date it was last reported late on a 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 on 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 the limitations expiration period.
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.
Statute of Limitations on Debt, 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 of 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.
Click here to qualify for home loans with bad credit with no lender overlay
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 mortgage company licensed in multiple states with no lender overlays can contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. Gustan Cho Associates has a national reputation of being a one-stop mortgage shop. We have relationships with dozens of non-QM and alternative wholesale lending partners. Over 80% of our borrowers are folks who could not qualify at other lenders due to their lender overlays or them not offering the right mortgage loan program. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.
