Many people want to get rid of their debts one way or another to keep creditors from taking them to court over debts. It doesn’t matter whether you owe $100 or $100,000, creditors can sue you for the amount you owe, if they deem it necessary. Don’t assume a creditor won’t sue you because you only owe a small amount. You may be unpleasantly surprised.
Background on Debt Statute of Limitations
If some of your debts are really old, state law may forbid the creditor from properly filing a lawsuit against you. But, it’s up to you to prove the statute of limitations has passed on your debt if the creditor sues you.
The statute of limitations varies by state. It’s typically between 3 and 6 years. Your state may also have a different statute of limitations on different types of debt, for example, credit cards may have a different statute of limitations from secured loans. The statute of limitations usually runs from the last date of activity on the account. Activity doesn’t necessarily mean payment. It could be as simple as stating that you owe the debt. Your state’s law defines when the statute of limitations starts running.
Note that the statute of limitations on debt (how long a court can hear an action on a debt) is different from the credit reporting time limit (how long the debt stays on your credit report).
Should You Settle?
When you’re sure the statute of limitations has passed, you may question whether you should worry about the debt at all. The creditor can’t sue you, so what’s the worse that can happen?
Debts can still be listed on your credit report for several years after the statute of limitations has run out. That’s because the statute of limitations can be as short as three years, while the credit reporting time limit is generally seven years. Unpaid delinquent debts can keep you from moving on with your life and getting approved for other credit cards and loans, especially a mortgage. Settling won’t remove the account from your credit report, unless that’s part of your negotiation, but it will close out the outstanding balance.
Creditors can still continue to collect on a debt after the statute of limitations has passed. The statute of limitations law limits how long a court can hear an action on a debt. It doesn’t stop a creditor from collecting from you. It doesn’t even stop the creditor from suing. However, if you prove the debt is beyond the statute of limitations, the court will dismiss the case. You may settle on a debt even if the statute of limitations has passed to keep collectors from contacting you, which they may continue to do every so often.
Some people believe they have a responsibility to take care of all the debt they’ve created. If you feel uncomfortable just walking away from a debt even though a court can’t make you pay, then you can settle the debt with the creditor so that you can also settle it in your mind.