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Statute of Limitations May Be On Your Side in Credit Repair


Posted on March 15, 2011

 

When you are working to resolve unpaid debts in an effort to repair your credit history and score, it is important to understand the rules concerning the Statute of Limitations on the debts you carry. There are many occasions where a consumer will come across an old debt still listed on their credit report and make a mistake by making a payment towards a debt. The mistake occurs when the debt is old enough to meet the requirements of the statute of limitations in their state – meaning the consumer was no longer legally obligated to make good on the debt.

Why Statutes Matter

Old debs that still appear on your credit report may already be past the statute of limitations time period. The statute of limitations, or SOL, is the length of time you are legally obligated to pay a debt. The time begins from the day you fail to abide by the agreement or contract with the creditor, which typically means when you fail to make a monthly payment as required. The SOL timeline continues to run from the day you fail to make payment on an open account and lasts for the time period dictated by your state. Every state has different statute of limitation periods but typically the range averages between 3-6 years. Some states can go as long as 10 years. There are also different time lines for written, oral, open-ended and promissory contract and agreements.

This is not advocate not paying your debts and simply letting the clock run out. Rather the statutes can help your credit repair when an old debt, long forgotten is discovered on a credit report. Before attempting to make a payment or negotiate with the creditor to pay off the balance due, the consumer should look into their state’s statute time period. If a partial payment or payment in full is made on the account, it my retrigger the SOL time period making you fully responsible to pay back the debt. However, if the time of limitations has passed on the debt, you will not have to pay the debt back. The statute of limitations will not affect how long the debt remains on your credit report as unpaid.

Obviously not making good on your creditor payments will drop your credit score during the time the debts are still considered collectible. When you are attempting to clear up your reports and increase your credit score, it can certainly benefit you financially to know when the statute of limitations has essentially released you from the debt. The impact on your credit score for leaving an account unpaid can be long-term but if the debt is so old, you can work on other aspects of your credit report and wait until the old debt is expunged from your credit records.

For example, if you have stopped making payments on your credit card on June 1, 2006 and the credit card company sends you a letter demanding payment in full on December 1, 2006, your SOL time frame begins on that date provided no further action is taken by you or the creditor. Your statute of limitation on the account would be tallied like this with a 5 year SOL on open accounts: December 1, 2006 + 5 years = December 1, 2012.

Clearing Up Credit Reports

Once the SOL expires you will not have to pay the debt back and the creditor will no longer be allowed to sue you for payment. The creditor may still try to file a lawsuit or claim for the balance owed but consumers have a legal defense if the SOL has expired.  While it is never a good idea to ignore any of your debts, if you find during your credit repair work that one or more accounts are long past the SOL laws, you can save the money to allocate toward current debts. Many consumers will make the mistake of paying off all the debts listed on their credit reports without first checking the time limitations on the accounts. Essentially they are wasting money that could be used more effectively paying off other debts.

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