Statue of limitations - Consolidate-1st.com

You may have heard that, after a period of time, a creditor can no longer collect money owed due to "Statue of Limitations". This article describes the two main time limit classifications: Debt Collection Related and Credit Reporting Related.

Debt Collection Related Time Limits

Collections Activity - A creditor or third-party collection agency can legally demand payment on a debt, via written correspondence and/or phone calls. Collection efforts of this sort have no statute of limitations and can continue until the debt is paid in full. Under the Fair Trade Collection Practices Act, a debtor can request a third-party collection agency to cease communication. This normally will end the "harrassment" contacts but does not prohibit the agency from continuing other collection efforts, or from passing the debt to another collection agency not bound by the order.

A creditor or collection agency cannot force collection of an unsecured debt without filing and winning a lawsuit. In collection, as in all business, the time and expense must be worth the outcome (in this case, the collection of the debt). If the debt is approaching the statute of limitations on collection, the less likely the effort will be contact, and the more likely the creditor or collector will give up or institute a lawsuit.

Lawsuits - If other collection procedures have failed the creditor may institute legal action to collect the debt. The statute of limitations on bringing a lawsuit against a debtor varies, as it is set by each state, not the Federal Government. Even small amounts that you may think are not worth the time and expense may be worth filing in small claims court.

The state in which the debtor lived at the time he or she incurred the debt determines the statue of limitations. If the creditor files a claim after the expiration of the statute of limitations, the debtor should file a response with the court stating the statute of limitations has expired, and request the suit be dismissed.

Judgments - A separate statute of limitations for actual collection of any judgment awarded in a lawsuit exists and again is determined by the individual state in which the award was granted.

Federal Taxes - Federal taxes owed have a 10 year limitation from the date of the assessment of the amount owed unless a lien has been filed. A tax lien on real estate or other tangible property remains in effect until the back taxes have been paid.

Student Loans - There is no statute of limitations collection action on defaulted federal student loans.

Credit Reporting Related Time Limits

The time limits for various types of information to appear on consumer credit reports are set by the Federal Fair Credit Reporting Act.

Making payments or partial payments on bad debts does not affect the running of the credit reporting time limits, except in the case of tax liens and federal student loans. All other types of items should expire on schedule, based on the original dates, regardless of when or whether they are paid.

There was previously a great deal of confusion over the starting point, which could have been interpreted as the date of the last activity on the account. This resulted in the possibility of "re-setting the clock" on an old bad debt by making a payment on it, or by paper-shuffling on the part of collection agencies. The issue was clarified in the 1996 amendments to the FCRA, which set a specific starting date related to the original delinquency date.

Inquiries - Two years.

Late Payments - Seven years from the month in which the late payment was due. If there are multiple late payments in one account item, then they will each expire individually.

Charge-Offs - Seven years. The time runs from the date of the delinquency, plus 180 days. If a payment was due on an account on January 1, 2000, but the debtor defaulted, and never caught up to become current again, and the account is eventually declared a charge-off by the creditor, then the seven year reporting time limit starts running on July 1, 2000, with the item scheduled to expire from his/her credit reports on July 1, 2007.

Collection Accounts - Seven years. The running of this time limit is the same as with charge-offs. The date of delinquency still refers to the original delinquency with the original creditor, regardless of when the collection agency began working the debt. This includes debts that have been bought by a collection agency. Collection agencies cannot legitimately "re-set the clock."

Lawsuits And Judgments - Seven years or until the governing statute of limitations has expired, whichever is longer.

Bankruptcy - Ten years (from the date of entry of the order for relief or the date of adjudication

Paid Tax Liens - Seven years from the date of payment

Unpaid Tax Liens - Forever (unless paid - see above)

Unpaid Federal Student Loans - Forever, unless paid, after which they can appear for 7 years

Credit bureaus are legally permitted to disclose older information in the following situations:

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