The Statute Of Limitations On Debts

If you ever wondered if there is a statute of limitations (SOL) on debts, the short answer is “yes.” But this short answer can be misleading since almost all fifty states have different statutes of limitations depending on the type of debt. For example, in Texas, the statute of limitations on written contracts, oral agreements, promissory notes and open-ended accounts is the same – four years. But in Arizona, it’s 6, 3, 6 and 3 years respectively. And in Illinois, it is 10 years on written contracts, 5 on oral agreements, 10 on promissory notes and 5 years on open-ended accounts. 

See a full list of the statutes of limitations by state here.  

What is a statute of limitations?

The statute of limitations refers to a period of years after which a creditor can no longer sue you to collect on your debt. Its purpose is to provide an expiration date so that you don’t have to look over your shoulder indefinitely. However, this does not prevent a creditor from suing you. If they do file suit, you can request that the case is dismissed on the grounds of “expired time.” Please note that the SOL does not pertain to certain kinds of debt including many types of fines, Federal Student loans, and past-due child support (depending on the state). 

It can be complicated

The SOL can be a bit difficult to calculate, as it is not always based on the last date you made a payment. Instead, it is generally measured by what is called evidence of indebtedness or the date you defaulted on the account—whichever came last. Suppose your account was current when you made your last payment. In this case, SOL would be four years from that date. Or it could be four years after the return date, as this would establish evidence of indebtedness. 

Payday loans and statutes of limitations

Payday loans might also have statutes of limitations. Be sure to contact someone who is familiar with your specific situation and state-specific rules. 

If you have gotten caught in the clutches of a payday lender, there’s at least some good news. Payday loans (PDLs) from unlicensed lenders may be illegal in your state. This means any payday loans taken out with one of these lenders are also illegal. 

What to do

The way payday loans generally work is that you give the lender permission to take money directly out of your checking account. So, the first thing you will want to do is talk to your bank. You can sit down with a personal banker or relationship manager (not a teller) and let him or her know that you’re rescinding ACH authorization for all your PDL’s, and that you will supply the bank with a copy of your letter revoking ACH authorization. Make it clear that you want to protect your account before any more money can be withdrawn. If you have overpaid on the loan’s principal, you can fill out fraud paperwork. You will need to explain that you have overpaid on the loan but that the lender refuses to stop deducting money from your account. If you still owe money to a lender (or lenders), be certain that you tell the bank that you learned this type of loan is illegal in your state and that you need to be protected from the lender’s ability to access your account. 

Close the account

You might also want to tell your banker that you’d like to keep your business with the bank and ask it to close your account and open a new one for you. 

A better solution

While the statute of limitations can keep you from being sued over a debt it can’t stop creditors from harassing you during all those years. This means a better solution might be to pay off those debts, including PDL’s, through debt relief or debt settlement. You can learn how debt relief could help you by filling out the free debt analysis form found on our home page.