What is the statute of limitations on debt and when does it start?

If you’ve got unpaid bills piling up, collecting dust, chances are you've lost some sleep over them. You aren't alone; the average U.S. citizen is carrying over $90,000 in debt according to Experian.

But there's good news: Those old bills can’t haunt you forever because there is a statute of limitations on debt.

Keep reading to learn more about what that means for you, including when the statute of limitations on debt starts in your state, and how you can use this law to your advantage.

What the statute of limitations on debt is

In the simplest terms, the statute of limitations on debt is a period of time after which debt collectors can no longer successfully sue a borrower in court for an old debt.

The length of time varies from state to state, but generally falls within a range of three to six years, although in states like Illinois and Indiana it can be as long as ten years, and in California as short as two years.

Besides location, a statute of limitations on debt is also influenced by the type of contract used when the credit was issued, whether it was written, verbal, a promissory note, or an open-ended agreement.

Each contract type carries a different statute of limitations length.

When does the statute of limitations on debt start?

A common question among borrowers is, "When does the statute of limitations on debt start?" Unfortunately, the answer isn't always black and white.

Generally, the statute of limitations begins on the date of the first missed payment. It can also, however, be on the day the debtor last acknowledged or interacted with the account, perhaps by making even a small payment or setting up a promise to pay.

The date is important because a creditor could use it as a technicality should they decide to sue even after the statute of limitations on debt appears to be up.

As soon as an old bill hits its statute of limitations, it becomes what is known as a time-barred debt. This varies by state. At this point, a creditor no longer has the option to successfully sue the debtor for the balance.

That doesn't mean they can't try, it just means that the debtor should have the law on their side.

Time-barred mechanics

Once a debt hits the statute of limitations in a state, time-barred status kicks in—the designation indicating that even though the debt is not settled, creditors can no longer successfully sue for the balance.

The key advantage of having a debt reach time-barred status is that debt collectors have little incentive to sue because the borrower becomes protected by the law. But technically, the debtor is still responsible for the balance.

A time-barred debt in most states sends the message to the debt collector "hands off" for any legal action, wage garnishment, or lien against any property the debtor might own.

The creditor may still have the right to contact the debtor through other channels, such as letters, phone calls, emails, and even social media, though the Fair Debt Collections Practices Act sets some boundaries.

With the exception of three states: Wisconsin, Mississippi, and North Carolina, time-barred debts are not completely erased. And if the time-barred debt is left unpaid, it can significantly damage the borrower’s credit score.

There are pros and cons to making payments against a time-barred debt.

If and when a consumer makes a payment toward a time-barred debt, or even just promises to do so, it could restart the statute of limitations on that debt. That might open the door for the creditor to take legal action against the borrower.

If a borrower wants to address a time-barred debt, they might want to follow through and pay off the balance as soon as possible.

Considering the intricacies around time-barred debt by state, it is best that consumers contact a consumer protection lawyer or the Bureau of Consumer Protection for the specific nuances in their state.

Debt type matters

When it comes to the statute of limitations on debt, the type of contract the debtor has entered into also matters.

This is because the statute of limitations by state often varies based on the type of agreement. Agreements generally fall into four categories: written, verbal, promissory, or open-ended.

• Written contract: This is a contract signed by both the debtor and the creditor and contains all the fine print, aka "terms and conditions" of the loan.
• Verbal contract: This is a debt based on an oral agreement in which the borrower promises to repay the lender. There’s no written document involved.
• Promissory note: A written contract such as a student loan that requires the borrower's signature and in which the debtor agrees to repay the loan by a given date at a certain interest rate.
• Open-ended agreement: A revolving account such as a credit card or line of credit whose amount can change and that remains accessible to the borrower as long as they are making the agreed-upon payments.

Below is a chart detailing the statute of limitations on debt collection by state expressed in years for written agreements:

State	Written contracts	Verbal contracts	Promissory notes	Open-ended account (including credit cards)
Alabama	6	6	6	3
Alaska	3	3	6	3
Arizona	6	3	6	3
Arkansas	5	3	5	3
California	4	2	4	4
Colorado	3	3	3	3
Connecticut	6	3	6	3
Delaware	3	3	*(6	4
Washington, D.C.	3	3	3	3
Florida	5	4	5	5
Georgia	6	4	6	6
Hawaii	6	6	6	6
Idaho	5	4	5	4
Illinois	10	5	10	5
Indiana	6 (10 years for debts incurred before Sept. 1, 1982)	6	6	6
Iowa	10	5	5	5
Kansas	5	3	5	3
Kentucky	15	5	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
Missouri	3	3	3	3
Montana	8	5	8	5
Nebraska	5	4	5	4
Nevada	6	4	3	4
New Hampshire	3	3	6	3
New Jersey	6	6	6	6
New Mexico	6	4	6	4
New York	3	3	3	3
North Carolina	3	3	5	3
North Dakota	6	6	6	6
Ohio	8*	6	6	6
Oklahoma	5	3	5	3
Oregon	6	6	6	6
Pennsylvania	4	4	4	4
Rhode Island	10	10	10	10
South Carolina	3	3	3	3
South Dakota	6	6	6	6
Tennessee	6	6	6	6
Texas	4	4	4	4
Utah	6	4	4	4
Vermont	6	6	14	3
Virginia	5	3	6	3
Washington State	6	3	6	6
West Virginia	10	5	6	5
Wisconsin	6	6	10	6
Wyoming	10	8	10	8

Risks associated with statutes of limitations

Waiting for a debt to run out from the statute of limitations might sound like a good idea, but it can be a risky bet.

Although debt collectors can lose their right to legal recourse after the statute of limitations on debt collection expires, the debt can still come back to haunt you.

A debt can stick around on your credit score for seven years from the date the account becomes delinquent. To avoid that happening, a borrower might want to consider ending the account on a more positive note.

Even if they can't pay the full balance, they might be able to negotiate a lower amount with the collection agency. By doing this, they can satisfy the debt and improve their chances of being able to qualify for credit next time they need it.

By letting the debt linger, the creditor can continue to tack on fees and penalties, even after the statute of limitations on debt has run out. This can complicate matters when trying to settle the account for a lesser amount.

Additionally, creditors still have the option to sue a debtor beyond the statute of limitations time frame, claiming that this critical date has not yet been reached. In this case, the burden of proof is on the borrower and their attorney to prove otherwise.

Takeaways

Having a debt spiral out of control is clearly not ideal, but borrowers should find some relief in the fact that there is protection available to them if the bill can't be resolved in the near term.

But just because a debtor can't be brought to court, the debt is not eliminated and an unpaid debt can adversely affect a borrowers credit score for years.

For that reason, a borrower may want to do everything possible to communicate with a creditor to find a solution and protect their credit score.

The need for credit could very likely arise in the future and waiting for the statute of limitations on debt to run out could take years and cause a great deal of stress.