Statute of Limitations for Credit Card Default Debt

Just as time heals all wounds, it also erases old credit card debt -- sort of. Every state has a law that places a limit on how long a creditor can sue for delinquent credit card debt, but this does not always get you in the clear. The lender still has some legal claim to the debt and can regain the ability to sue again

Identification

The statute of limitations on credit card debt, which most states consider an open account, varies from state to state. Alabama and Arizona, for example, allow credit card issuers to sue for a delinquent open account for three years, while Rhode Island has the strictest law, allowing creditors to sue for 10 years as of 2010, according to the CardReport website.

Considerations

If the credit card issuer obtains a judgment, it may be able to renew the statute of limitations if you live in a state that lets a creditor do that and continue to charge interest, according to the BCS Alliance. A diligent creditor can renew the judgment for the rest of your life.

Misconception

When the statute of limitations passes and the creditor fails to obtain a judgment, you are not absolved from the legal liability to pay it -- the SOL only prevents a creditor from suing. Thus, the creditor can still call and send letters requesting payment, but he may not threaten to take you to court or be in violation of the Fair Debt Collection Practices Act. Also, to stop a lawsuit, you must use the SOL as your defense or otherwise the creditor can go ahead with the case, according to Carreon and Associates. (ref 4)

Warning

Paying off an old debt, which is probably with a debt collector if it is older than six months, does not improve your credit score; if the statute of limitations passes, there is little reason to pay it back, because the creditor cannot go after your assets. Also, settling on an account that has passed the statute of limitations renews the date and the credit agencies can report it as a new collections account again -- which stays on your report for seven years, according to MSN Money Central.

References

• MSN Money Central: When Paying Bills Can Hurt Your Credit; Liz Weston; 2009
• CardReport: Statute of Limitations For Debts
• BCS Alliance: How to Fight Back Against Debt Collectors State Laws -- Debt -- Judgments -- Statutes of Limitations -- Interest Rates
• Carreon and Associates: Statute of Limitations