As you come up with a plan for settling your debts, you should consider whether debts are passed the statute of limitations. Debts that haven’t been touched for several years may be too old for collectors to force you to pay. If you can manage to ignore these debts, you may choose to leave them out of your debt settlement plan.
What is the Statute of Limitations?
Basically, the statute of limitations on debt is the amount of time anyone can ask the court to force you to pay a debt. The clock starts ticking on the last date you made some type of activity on the account. Activity could mean a payment, a charge, or sometimes even acknowledging that you owe the debt. The last date of activity on an account isn’t always the same as the date of activity that appears on your credit report. For example, a payment agreement on an account wouldn’t appear on your credit report, but would affect the statute of limitations.
It’s up to you to keep accurate records and to prove the statute of limitations has run out if a creditor or collector does take you to court over a debt. If you’re sued and you believe the statute of limitations has expired, make sure you show up at your court hearing and show the judge the proof you have.
The statute of limitations varies by state and by type of debt. It may be 3 years or 15 years or some other time period, so make sure you check your state’s law for the statute of limitations. Several websites have lists for each state.
Using the Statute of Limitations
The statute of limitations does not stop a creditor from pursuing you for a debt, even if the court agrees the statute has passed. They can still call you and send letters. They can even put the account on your credit report as long as the debt is within the credit reporting time limit. Because of that, you may choose to settle a debt even if the creditor can’t sue you for it. Settling the debt won’t remove it from your credit report, but it will put that account balance at $0.
Be careful not to restart the statute of limitations, especially if you plan to use it to your advantage. When you talk to a creditor or collector about a debt, you should not agree to a payment plan. It’s best not to even admit the debt is yours. Otherwise, the statute of limitations probably starts over from the beginning.
Or, you can choose not to deal with the debt at all. As long as you can ignore calls and letters from creditors, the debt will continue to get older and older. Debts never go away though. Your liability still remains even though the debt is no longer enforceable through the court or even allowed to be listed on your credit report.
Some people feel a moral obligation to pay or at least settle debts even after the statute of limitations has passed. That’s a personal decision that only you can make.