Debt collectors and original creditors have a limited time during which they can sue to collect. However, each state has a different period of collection and certain circumstances can reset the clock and start the period afresh. Most states have debt collection periods of 3-6 years after the first missed payment, though some have statutes of limitation as long as 10 years. After that time, the unpaid debt is considered “time-barred,” meaning that a debt collector can’t sue for it. No matter where the debt collector is based, he’s bound by your state’s statute of limitations.
If you are out of statute of limitation, therefore you are in safe heaven. Legally your creditor, junk debt buyer or collection agency can't sue you as they will violate Fair Debt Collection Practices Act for suing to collect out of statute of limitation debt. If person make a partial payment, a person could be postponing the Statute of Limitations. In Most states statute of limitations started ticking the day they made the last payment for their account. Some states have laws which specify that a partial payment does not restart the clock on the Statue of Limitation , unless there is a new written promise to pay. The statute of limitations is only extended by new written promise to pay in these states:
Arizona, California, Florida, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New York, Texas, Virginia, West Virginia, Wisconsin.
Types of agreements subject to statute of limitations
Most states have different Statue of limitation depending on the type of contract. For example, some differentiate between written and oral agreements; others separate open-ended accounts such as credit cards. Here are some typical contractual breakdowns:
- Oral contract: An agreement made with spoken words that is either unwritten or only partially written. It is just as valid as written contracts, though harder to prove.
- Written contract: As the name implies, a contract where the terms are fully put down and writing, and typically signed.
- Promissory note: A signed and written agreement to pay a certain amount of money on demand at a specified time.
- Open account: An account, such as a credit card, where the outstanding balance is not predetermined. Note that this is different from a promissory note because the repayment amount is not defined at the time of opening.
You can decide if you will pay a time-barred debt, but each potential course of action has its benefits and drawbacks.
- Do not pay any of the debt: Even though a collector can’t sue you to recoup the debt, they can continue contacting you unless you send them a letter telling them to stop. Refusing to pay your debts will also tank your credit score.
- Make a partial payment: Paying off only some of the debt is a risky proposition, because in some states, if you pay any amount, the debt is revived and is no longer time-barred. This resets the statute of limitations clock, and debt collectors can sue you to collect the full amount plus any interest and fees that accrued during the Statue of limitation period.
- Pay it off in full: Paying off the debt, even though you don’t have to, might help your credit score. Some collectors may be willing to accept a smaller amount than what’s owed, either in a lump sum or installments. However, make sure that you have a written and signed agreement with the creditor that paying this amount will settle your full debt before you begin repaying. Doing so will prevent the issues associated with a partial payment.