Know Your Rights: The Statute of Limitations on Debts Skip to main content

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Know Your Rights: The Statute of Limitations on Debts


As any experienced bankruptcy attorney will tell you, knowing your rights and defenses against creditors is key to leaving behind a troubled financial past and making a fresh start. There are a host of things you should know. One of them is that there are specific limits to how long your creditors can chase after you trying to claim an unpaid debt.

Every state has a "statute of limitations,- which is a law that prohibits a creditor from suing you on an unpaid debt after a certain period of time has elapsed. Evidence gets lost or destroyed, and memories tend to fade, over time. This makes it more difficult to prove or defend against a claim, which ultimately makes it harder for the legal system to reach the right result. So, the statute of limitations is designed to encourage creditors to act within a reasonable period of time, by barring their claims if they fail to do so.

The amount of time a creditor has to act depends upon the nature of the claim and the state where you live. In North Carolina, for instance, the statute of limitations to sue is: three years for contracts (written or oral) and "open-ended- accounts (a revolving line of credit with a varying balance); four years for sales of goods; five years for promissory notes (e.g., loans); and ten years for judgments.

On open-ended accounts, the statute of limitations starts running from the date of the last activity on the account. This means the clock starts over with each new payment on the account. For contracts and promissory notes, the statute generally begins to run from the date of the breach or default. The distinction can be important when dealing with credit card debt. In some states, like North Carolina, credit card accounts are considered open-ended accounts. In others, they're considered contracts. Where credit card accounts are considered contracts, the clock usually starts running from the date of the last payment.

Certain events can "toll- (stop) the clock on the statute of limitations. Filing bankruptcy is one of them. In the event of your death, disability, or incompetence, the clock stops running until such time as a personal representative or guardian is appointed.

The key point to remember is that if the statute of limitations has run, the creditor has no right to sue on the debt. This an absolute defense to any lawsuit filed against you. And, threatening to sue on time-barred debts violates the Fair Debt Collection Act.

Nevertheless, you may still get hounded about the debt. In fact, some companies thrive on buying up old debts and trying to collect from unwary debtors. This is why it's so important to seek legal advice before responding to these types of claims. By entering into repayment agreement on a time barred debt, you may have re-started the statute of limitations for that claim, bringing the debt "back to life".

So, if you continue to be hounded about debts from years ago, or if you're contacted out of the blue about a debt you had long since forgotten, don't admit liability and don't agree to any payments. Talk to an experienced consumer rights or bankruptcy attorney today, and learn how federal law can stop debt collectors in their tracks.

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