Time Limits on Lawsuits by Debt Collectors

It is not uncommon for consumers to be contacted by debt collectors.  Debt collectors can be people or companies that collect debt owed to someone else; sometimes debt collectors actually purchase the past-due debt from the original creditor who made the loan or extended the credit.

One way debt collectors try to get repaid is by bringing a lawsuit against the debtor in court.  If the debt collector is successful in the lawsuit, the debt collector may be given permission to take special steps to collect on the amount owed.  (Such steps might include garnishment of wages, or the freezing and seizure of funds from the debtor’s bank account.)  But when it comes to lawsuits against the debtor, time may be a deciding factor in the outcome.

State laws limit the amount of time a debt collector has to file a lawsuit with the court. When this time limit has passed, the law says the debtor may have the lawsuit thrown out for not meeting the applicable time constraints.  This concept of a legal time limit for the debt collector to sue is called the Statute of Limitations.  In legal terms, when the time limit has passed, it is said that “the statute of limitations has run.”

This blog takes a look at the rights and obligations of a debtor when the time limit to sue has passed. Below are some questions and key points to remember about your debt after the statute of limitations has run.

When the time limit to sue has passed, and a debt collector can no longer sue in court, what does that mean about the underlying debt?

  • The debt still exists, or put another way, the debtor’s promise to repay the debt still lives on. However, the debt collector no longer has the ability to sue or ask the court for permission to take the special steps mentioned above.  (That’s not to say some debt collectors still won’t try to bring a lawsuit.  It is always important to pay attention to notices from a debt collector because one might include a notification of a lawsuit .  If a debt collector sues outside of the time limit, you should not rely on the courts to enforce the statute of limitations on the debt collector.  In fact, many states require the debtor to prove that the time limit has expired.  For more details on these situations and possible legal support check out the this page at the Consumer Financial Protection Bureau)

What can the debt collector do after the time limit to sue has passed?

  • After the time limit has passed, and even though the debt collector cannot sue or take action in court, the debt collector may still contact the debtor. The debt collector may ask the debtor to repay the debt in full or setup a repayment plan or attempt to recover a portion of the debt. It’s important to remember that such contact is still governed by federal and state fair debt collection laws. The debt collector must still follow the rules. For a good summary on these rules visit another article on this website: Dealing with Debt Collection.

Should the debtor worry about the debt if the law won’t make him repay it?

  • Outstanding past-due debt may still have an adverse impact on a consumer’s ability to borrow in the future. Other creditors, banks, and financial institutions may be more reluctant to make loans or extend credit when they know a consumer has a history of unpaid loans.  After the time limit to sue has passed, the debtor may voluntarily decide to repay the debt but the courts cannot make him do so.  If a debtor is going to make payment to a debt collector after the statute of limitations has run, the debtor should seek legal advice.  The Federal Trade Commission has a helpful page explaining why repayment after the statute of limitations can be complicated, here.

So should a debtor just wait until the statute of limitations runs, and ignore any attempts by the debt collector to get the debtor to repay?

  • The debtor should never ignore the status of his outstanding debt. Up until the statute of limitations has run, a debt collector can bring legal action for repayment, and if the debtor has ignored important notices about the legal action, the debtor could miss out on his day in court (to dispute the debt or make other arguments against the debt collector). Therefore, it is always important to pay attention to correspondence received regarding an outstanding debt. While the debtor has the right to tell the debt collector to leave him alone, doing so does not mean the debt collector can’t take legal action before the statute of limitations is out.

So how do you know if the statute of limitations has run? (How do you know when the creditor can no longer take legal action regarding repayment of the debt?)

  • It is not within the scope here to explain how to determine the time limit a creditor has to take legal action. However, a quick search of the internet using queries such as “Statute of limitations and debt collection,” “Time-barred debts” and “Statute of limitations for old debts” all will provide helpful resources on the topic. Generally, the debtor should check his state laws to find out the length of time a debt collector has to pursue legal action. This length of time varies by state and by the type of debt or loan the consumer entered into. Also, different events trigger the clock on the statute of limitations.

Ultimately, if a debt collector has run out of the time allowed to sue a debtor, the debt collector can no longer use the law to force payment.  Nevertheless, a debtors should still be aware of their rights and existing obligations even after the statute of limitations has run.

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