Statute Of Limitations On Debt Collection By State

Statute Of Limitations On Debt Collection By State

This BLOG On Statute Of Limitations On Debt Collection By State Was UPDATED On February 4th, 2018

The definition of a statute of limitations on debt collection is a window of time that a creditor or debt collector has to pursue legal action against a debtor of an unsatisfied or defaulted debt.

  • Once this statute of limitations on debt collection period expires, the debt collector and/or creditor can no longer pursue the collection of the debt and the debtor is no longer responsible
  • The court system is not a debt collector
  • It is up to the debt collector to utilize this statute of limitations on debt period to pursue their right to collect on an unpaid debt

Expiration Of Statute Of Limitations On Debt Collection

Statute of Limitations On Debt Collection are set by the individual states and not the federal government.

  • Each state has its own statute of limitations on debt collection
  • Old debts that has expired and passed the statute of limitations on debt collection time limits are know as time barred debts
  • Technically, consumers still owe on the debts that have past the statute of limitations on debt collection period
  • But the courts cannot issue a judgment against them
  • Consumers sued by a creditor or debt collector on an aged debt that has passed the statute of limitations on debt collection limits, go to court with proof that statute of limitations has expired and the judge will throw the case out

Types Of Debts

There are four different types of debt structures and there is a separate statute of limitations concerning these four different types of debt categories.

  • Oral contract debt structure:   
    • Oral agreements are verbal contractual agreements made between a debtor and creditors and it is not in writing
    • Normally oral agreements are tough to prove unless there is a recording made or eyewitnesses
  • Written agreements and/or contracts: 
    • Written agreements and/or contracts are contractual agreements between the debtor and creditor
    • It normally includes the terms of the the debt
    • The repayment method as well as the interest charged and consequences of the default
    • Medical debts would be an example of written agreements
  • Promissory note contract: 
    • A promissory note is a written agreement between the debtor and creditor
    • The promissory note has the terms and rates of the note
    • Residential mortgage loans, and student loans are examples of promissory note contracts
  • Open-ended credit accounts: 
    • Revolving open-ended credit accounts are revolving credit accounts where consumers can charge up to a set credit limit by the creditor and pay a minimum payment until the balance is zero
    • Consumers can then charge it again up to the credit limit
      • Credit cards
      • Department store cards
      • Jewelry store credit cards
      • Furniture store cards
    • The above are examples of revolving open-ended credit accounts

Statute Of Limitations On Debt Collection By Each State

As mentioned earlier, each individual state has their own statute of limitations expiration period on the four categories of debt.  Each category has different statute of limitations expiration periods.

  • The chart below is a summary of the statute of limitations on each individual state per category
  • Double check your debt type and confirm the statute of limitations guidelines with your state or your attorney

The chart below may be outdated or the state might have modified their statute of limitation period.

State Oral Written Promissory Open
Alabama 6 6 6 3
Alaska 6 6 3 3
Arizona 3 6 6 3
Arkansas 6 6 3 3
California 2 4 4 4
Colorado 6 6 6 6
Connecticut 3 6 6 3
Delaware 3 3 3 4
Florida 4 5 5 4
Georgia 4 6 6 4
Hawaii 6 6 6 6
Idaho 4 5 5 4
Illinois 5 10 10 5
Indiana 6 10 10 6
Iowa 5 10 5 5
Kansas 3 6 5 3
Kentucky 5 15 15 5
Louisiana 10 10 10 3
Maine 6 6 6 6
Maryland 3 3 6 3
Massachusetts 6 6 6 6
Michigan 6 6 6 6
Minnesota 6 6 6 6
Mississippi 3 3 3 3
Missouri 5 10 10 5
Montana 5 8 8 5
Nebraska 4 5 5 4
Nevada 4 6 3 4
New Hampshire 3 3 6 3
New Jersey 6 6 6 6
New Mexico 4 6 6 4
New York 6 6 6 6
North Carolina 3 3 5 3
North Dakota 6 6 6 6
Ohio 6 15 15 6
Oklahoma 3 5 5 3
Oregon 6 6 6 6
Pennsylvania 4 4 4 4
Rhode Island 15 15 10 10
South Carolina 3 3 3 3
South Dakota 3 6 6 6
Tennessee 6 6 6 6
Texas 4 4 4 4
Utah 4 6 6 4
Vermont 6 6 5 3
Virginia 3 5 6 3
Washington 3 6 6 3
West Virginia 5 10 6 5
Wisconsin 6 6 10 6
Wyoming 8 10 10 8

Qualifying For Mortgage With Outstanding Collections And Charge Offs

Mortgage Borrowers can qualify for FHA, VA, and Conventional Loans with outstanding collections and charged off accounts without having them to pay them. FHA Loans has the most lenient mortgage guidelines for borrowers with outstanding collections and charge off accounts.

HUD, the parent of FHA, classifies collections into two different categories:

  • Non-Medical Collections
  • Medical Collections

FHA Guidelines On Collections And Charge Off Accounts  state that if borrowers have more than $2,000 of non-medical outstanding collection accounts, the lender needs to take 5% of the outstanding unpaid collection account balance and use that figure as a hypothetical monthly debt when calculating debt to income ratios of borrowers.

  • They do not have to pay it off but it is a hypothetical figure used in DTI Calculations
  • This can be an issue when borrowers have substantial non-medical collection account balance. In lieu of the 5% rule, borrowers can make a written payment agreement with creditor and that agreed upon monthly payment can be used
  • Charged Off accounts does not matter and neither do medical collections

Home Buyers and Homeowners who need to qualify for mortgage with a direct lender with no mortgage lender overlays on government and conventional loans, please contact us at The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com.

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