If you have charge-offs or collection accounts on your credit report, you’ve probably heard that debts can no longer be collected after the statute of limitations expires. That’s true–sort of. The devil is in the details, though. So here are some important distinctions about running out the clock on old debt.

On a personal note, I have done this myself. I had a few charged-off credit cards that went into collections several years ago. Some lenders had sold the debt, and others had kept it and hired collection agencies to try and collect.

At this point, I was well into my credit repair journey, and I knew that if I could make it 4 yeas from the date of first delinquency (without getting sued or doing something to extend the statute of limitations–more on that later), I was home free. At the time though, 4 years (the statute of limitations in my state) sounded like forever.

Running out the clock should never be your Plan A. It’s more like Plan B, C, or D. But you need to be aware of the statute of limitations and some other important info no matter what your plans are. 

Statute of Limitations: What is it?

The statute of limitations basically means that lawsuits have to occur within a certain amount of time after the incident that caused the suit. At some point, people have to move on with their lives, and the courts don’t want to be resurrecting decades-old disputes and trying to figure out what happened. It’s simply in people’s best interest if claims are dealt with rather quickly.

So if a credit card company is going to sue you over money you owe them, they have to do it within a set period of time. The exact time period varies by state. For most, it’s between 3 and 6 years. However, there are a couple of states that have 8 and 10-year time limits on suits for credit card debt.

You can see a table with this info by state here.

Effects on Lawsuits, Collections, and Credit Reports

The statute of limitations sets the time limit for lawsuits, not collections. After the statute of limitations runs out, you may still be contacted by debt collectors. Just because the lender can’t prevail in a lawsuit doesn’t mean they can’t still call you and ask you for the money.

Also, the statute of limitations has nothing to do with your credit report whatsoever. I get people asking me all the time why accounts are still on their credit reports when the statute of limitations has expired. They are completely separate. These items fall off your credit report 7 years after the charge-off date, regardless of what the statute of limitations is.

What about Other Kinds of Debt Besides Credit Cards?

This comes into play most commonly with credit card debt, personal loans, and miscellaneous debts that have been sold to collection companies (like cell phone bills, etc). The statute of limitations can be different for credit cards vs installment loans, so check out that table  again and make sure you’re looking at the right column for the kind of debt you have.

Why? Because all of these debts are unsecured. Stop paying your car loan, and the car will get repossessed. Default on your mortgage, and you’ll end up in foreclosure.

When does the Statute of Limitations Begin and End?

Since states vary on this, I’m going to give you some general information about this point. It’s up to you to research your particular state.

The statute of limitations begins when the event that you could be sued over occurs. For credit cards, this is the date you missed your first payment. If you missed a payment on June 10, 2005, that’s when the clock starts (assuming you didn’t make subsequent payments after June 10).

It ends x years after June 10, 2005, depending on state. That deadline is for initiating a lawsuit. The lawsuit doesn’t have to be concluded within the statute of limitations; it just has to start. What constitutes “starting” is something else that varies by state.

Can the Statute of Limitations be Extended?

Yes. This is extremely important, and it’s a point that people miss again and again. If you make a payment on a debt, you effectively reset the statute of limitations. The lender now has more time to sue you.

This is why when you get a phone call from debt collectors, they will try to coerce you into making small payments. It resets the statute of limitations, makes them a little bit of money, and is basically an admission of guilt when they eventually sue you.

And it’s not just actual payments, but agreements to pay. If you tell a debt collector “I’ll pay you when I get the money,” you might have reset the statute of limitations, too. Oops!

Talking with debt collectors is like walking through a minefield, and that’s why I recommend that people don’t do it. Even a passing comment could seriously hurt you.

I really want to reiterate this: if the statute of limitations is 5 years in your state, and you get a call from a collector the day before it expires and you tell them that you’ll send them $10, you might have just given them 5 more years to sue you.

Will Anybody Notify Me When the Statute of Limitations Expires?

Usually not. Technically, the owner of the debt is supposed to send you a 1099-C, a “cancellation of debt” notice. If a lender forgives or settles the debt, or time runs out, that counts as taxable income for you. However, if you are insolvent, you won’t have to pay taxes on it. This is definitely something to talk to your tax professional about.

However, in my experience, companies usually don’t send these out. You may or may not receive one.

So What if Someone Sues Me over a Time-Barred Debt?

Remember, anyone can file papers to sue anyone for anything. You still have to respond, or you lose automatically. That’s how the system works. So if you get served papers and the debt is out of statute, you still need to respond! Basically, your lawyer would file a response that the debt is time-barred and ask for the suit to be dismissed. It’s not a big deal, but you need to go through the correct process to get the suit dismissed.

So What Should I Actually Do with this Information?

That’s up to you. As I said at the beginning of this article, running out the clock is never Plan A. First of all, waiting for several years with your fingers crossed, the threat of a lawsuit hanging over you all the time, is not ideal for your peace of mind.

In my case, I was constantly trying to settle the debt. I always communicated in writing and included appropriate disclaimers to avoid resetting the statute of limitations. I offered to pay what I could afford, but none of the lenders would accept anything that was within my means.

About a year before the statute of limitations ran out, I stopped trying to settle. I didn’t want someone in the debt collection office receiving one of my letters and realizing that the debt was about to expire. That could just precipitate a lawsuit.

In the end, the statue of limitations ran out on all of my charged-off credit card debt. I got a 1099-C from only one of them.

I realize that I got very lucky. Some people are sued over debts almost instantly. There’s no telling whether or not you will be sued over your old debt.

So this may be only a Plan D for you in your credit and debt repair strategy, but is an important backstop and it pays to know where you stand.