Statute Of Limitations On Debt Collection By State

This BLOG On Statute Of Limitations On Debt Collection By State Was UPDATED And PUBLISHED On December 11th, 2019

What does Statute Of Limitations On Debt Collection By State mean?

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
  • Debtors is no longer responsible for outstanding debts and charged off accounts
  • 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

What does Expiration Of Statute Of Limitations On Debt Collection mean?

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 known 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
  • The judge will throw the case out

Types Of Debts

What are 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.

StateOralWrittenPromissoryOpen
Alabama6663
Alaska6633
Arizona3663
Arkansas6633
California2444
Colorado6666
Connecticut3663
Delaware3334
Florida4554
Georgia4664
Hawaii6666
Idaho4554
Illinois510105
Indiana610106
Iowa51055
Kansas3653
Kentucky515155
Louisiana1010103
Maine6666
Maryland3363
Massachusetts6666
Michigan6666
Minnesota6666
Mississippi3333
Missouri510105
Montana5885
Nebraska4554
Nevada4634
New Hampshire3363
New Jersey6666
New Mexico4664
New York6666
North Carolina3353
North Dakota6666
Ohio615156
Oklahoma3553
Oregon6666
Pennsylvania4444
Rhode Island15151010
South Carolina3333
South Dakota3666
Tennessee6666
Texas4444
Utah4664
Vermont6653
Virginia3563
Washington3663
West Virginia51065
Wisconsin66106
Wyoming810108

Qualifying For Mortgage With Outstanding Collections And Charge Offs

How Qualifying For Mortgage With Outstanding Collections And Charge Offs

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

HUD Guidelines On Collections And Charged Off Accounts

What are HUD Guidelines On Collections And Charged Off Accounts

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 overlays on government and conventional loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com.

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