What is the Statute of Limitations on Debt?

Cayden Conor
Cayden Conor
Businessman with a briefcase
Businessman with a briefcase

The statute of limitations on debt (SOL) is different from the amount of time debt remains on a credit report. The SOL is the quantity of time that a creditor can sue a debtor for non-payment of debt owed to it. Depending on the jurisdiction and the type of debt, the statute of limitations on debt is usually from three to six years, although it can be much longer.

There are four types of debt incurred by a consumer: oral contracts, open-ended accounts, written contracts, and promissory notes. An oral contract is a contract wherein the consumer verbally agrees to pay money that was loaned to him. An open-ended account is an account with a revolving line of credit, such as a credit card. The balances vary based on the debtor's use of the account.

A written contract is usually in the form of a formal or informal document in which the terms of the debt are written down and both parties sign the document. The document could be as simple as the principal, the amount due monthly and due dates on a scrap piece of paper, or it could be a complex multi-page document outlining the terms of repayment. A promissory note is similar to a written contract, except the scheduled payments and the interest due on the loan is contained in the promissory note. A mortgage is an example of a promissory note.

A statute of limitations on debt can apply to any of these types of debt. The period of time after which the debt can no longer be sued for varies by jurisdiction and the type of debt, however, and does not begin until the debt is delinquent or a formal request for payment has been made. This means that, if the statute of limitations on debt is six years, and a debtor originally incurred the debt ten years before, the creditor can still sue to recover the debt if the debtor had been making payments within the six year time period.

Although the statute of limitations on debt limits the amount of time which a creditor has to sue, it does not mean that the creditor has to stop trying other methods to recover the debt. Collection agencies may attempt to contact and collect on debts long after the statue of limitations as run out. The delinquent debt will still also be reported to the credit bureaus, and can damage a person's credit score.

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