Statute of Limitations for Credit Card Debt: Know When You Can and Can't Be Sued

Yes, "statute of limitations" is a legal term. No, its relevance is not limited solely to the criminal courts. Sure, it can be used to describe how long after a crime someone can be prosecuted for committing it, but you are perhaps more likely to run across it as it pertains to credit card debt.

The statute of limitations for debt is basically the length of time debt is relevant under the law, and before it runs out your creditors can freely use the courts in their efforts to recoup the money you owe them. After the statute of limitations runs its course, your debt becomes “time-barred,” meaning that any lawsuits initiated by debt collectors will be dismissed as long as you state before the court that the statute of limitations expired. Additionally, should debt collectors continue to harass you over time-barred debt, you can send them cease-and-desist letters to stop these intrusions.

The statute of limitations for debt varies by state and begins when you make your last payment. Each payment you make resets the statute of limitations clock and effectively re-ages your debt. Therefore, unless you can reach a settlement agreement or develop a payment plan with your creditors, making small payments may be ill-advised. Minimal payments will make a minimal dent in your debt, and they will ensure that you stay vulnerable to lawsuit for a longer period of time. In many states making an actual payment is not the only action that will re-age debt either.

Take New Mexico for instance. According to the Attorney General’s handbook, the statute of limitations for debt in the “Land of Enchantment” will also reset if you:
 

• “sign a paper in which you admit that you owe the debt or in which you make a new promise to pay”;
• "sign a paper in which you give up (“waive”) your right to stop the debt collector from suing you."

It is therefore very important that you verify your particular state’s rules concerning the statue of limitations for written contracts, which includes credit card agreements.

Additionally, avoid the common mistake of confusing debt’s statute of limitations with the length of time negative information about credit card debt stays on your major credit reports. The latter begins when you first become delinquent and runs for seven years no matter what you do in the meantime. Nothing -- not even making payments toward your debt -- will change this length of time. However, should you manage to settle your debt, this will be noted on your credit reports and will most likely be positively reflected in your credit score.

If you are knowledgeable about debt, you’ll be in the driver’s seat and will face a much smoother road to becoming debt-free. Being well-versed in the structure of the statute of limitations for debt will help you strategically address your payments as well as minimize the chances of losing a lawsuit. It will also prevent debt collectors from overstepping their bounds and making your life difficult. So study up, and apply the lessons learned. You’ll be back in the black in no time!