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Statute Of Limitations (SOL): What It Really Means
The statute of limitations means that after a certain period of time you are no longer legally responsible for that debt.
You’re free.
Thank goodness for the SOL — otherwise old debts could follow you to your grave.
However …
The SOL Varies From State To State
Each state has it’s own SOL on credit card debt collection. Most SOLs are between 3-6 years. Here’s an excellent resource listing the SOL for each state:
State statutes of limitation (SOL) for credit card debt
It’s a good idea to compare data from different sources to ensure accuracy. So here's an additional, reputable SOL resource:
NOLO.com: Statute Of Limitations
NOTE: When you see a chart with a column labeled “open” or “open-ended”, that column refers to credit card debt .
When Does The SOL Clock Start Ticking?
The legal definition of the starting point might vary from state to state, but generally speaking the statute of limitations clock starts ticking when your account first becomes delinquent. In other words, the date of your last payment.
However, in some states the clock doesn’t start until 6 months after the last payment. So make sure you read the fine print of the law in your state.
Two Common Misconceptions About Statutes of Limitations
Beware Of Re-Aging
Let’s say you live in a state where the SOL is 6 years. And let’s say the last payment you made on your credit card debt was 5 years ago, which means you only have 1 more year before the SOL expires.
Now all of a sudden you start getting calls and letters from a debt collector and they persuade you to make a payment, even a small payment, on that 5 year old debt.
Well, guess what? You most likely just reset the clock back to zero. Now that debt collector has another 6 years to potentially file a lawsuit against you to collect that debt.
If you’re approaching the SOL on an old debt and you’re contacted by a debt collector, the two best ways to handle that would be:
- Ignore the communication. Time is on your side. Just a little while longer and you’re legally off the hook for that old debt.
- Ask the debt collector to verify the alleged debt. If the debt collector is becoming annoying or aggressive and you want to address the matter head on, politely but firmly ask them to verify the alleged debt. It’s your right to see paperwork confirming that the supposed debt is valid. The debt collector knows this is your legal right. By invoking your legal right to see documentation, there’s a good chance the debt collector will give up and go after someone less informed. You’re too much work.
2 Different SOLs: Collections vs. Credit Report
Up to this point, everything we’ve discussed is with regard to the legal SOL for collection of a debt.
However, there’s also a SOL for how long an item may appear on your credit report, per the Fair Credit Reporting Act (FCRA). For example, an old credit card debt may appear on your credit report for up to 7 years.
These 2 SOLs are completely independent of each other. Apples and oranges.
Can A Debt Collector Still Contact You After The SOL Has Expired?
Yes.
Once the debt has passed the SOL, all that means is that you are no longer legally responsible for that debt and debt collectors have no legal recourse against you for collection of that debt.
But there’s nothing to say they can’t still contact you in hopes of coercing a payment from you.
As mentioned above, either ignore the debt collector or ask them to verify the debt with proper documentation. If you ask them to verify the debt, send your request in writing so it’s documented and on record. Until they verify the debt with proper documentation, the debt collector is prohibited by law from contacting you per the FDCPA (section 809, specifically).
Always remember that debt collection is a numbers game. Debt collectors are not going to waste time on accounts that have little or no chance of recovery, or require too much work.
Can You Still Be Sued After The SOL Has Expired?
Technically, yes. This is where it can get a little confusing.
Even though the SOL has expired on a debt, a lawsuit can still be filed against you for that debt.
If this happens you must respond, otherwise the plaintiff could win by default for your failure to respond, even though the SOL has expired. Basically the opposing party would prevail due to a procedural technicality. It’s just how our legal system works.
When you respond, your defense is that the SOL has expired. Unless the plaintiff can demonstrate otherwise, the lawsuit would have to be dismissed.
Obviously it would be wise to consult with an attorney on a matter like this. Never ignore legal action.
Is A Charge-Off The Same As A Write-Off?
They sound the same, but they’re 2 totally different things.
Charge-Off
The term “charge-off” is a term used to describe a credit card account that reaches 180 days past due.
At the charge-off point, a credit card company is required to reclassify the account for accounting purposes from a “performing” asset to a “non-performing” asset for the bank.
At 180 days past due, the account shows up on your credit report as “charged off”.
Here’s what’s important …
After a credit card account gets reclassified as a charged off account, the credit card company still reserves the right to pursue collection of the outstanding balance.
Many people mistakenly believe their credit card debt is forgiven when their account is charged off. Unfortunately it’s not that easy. You’re still responsible for the outstanding balance — even if it’s “charged off”.
Each credit card company handles charged off accounts a little differently:
- Some continue with their own in-house collection efforts on that charged off account.
- Some outsource the charged off account to a collection agency, but the credit card company still retains ownership of the account.
- Some credit card companies cut their losses and sell the charged off account to a debt purchaser.
Write-Off
A “write-off” on the other hand is when a creditor forgives a portion of the balance that is legitimately owed.
For example, if you have a credit card balance of $20,000 and the creditor agrees to accept $8,000 to settle the account in full, that means they write off the remaining $12,000 balance and call it even.
If you’re seeking debt relief, obviously what you want is a write-off … not a charge-off.
Conclusion
The statute of limitations can be a bit tricky or confusing, plus laws vary from state to state. That’s why you need to do your homework on any old debts you might owe in case you’re contacted by a debt collector.
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