What Is The Statute Of Limitations On Your Debt?
In law, there is a time limit that you can sue someone. The time limits vary depending on the kind of case, but for debt and bankruptcy purposes, the statutes of limitations that are most relevant are those that have to do with debts.
You may not have noticed but every time you take out a loan, a credit card, or a mortgage, you are signing a written contract obligating you to pay back that debt. Sometimes, creditors can take years before they pursue you for unpaid debt. You may be wondering how long they can pursue you.
Why Does it Matter?
Before answering that question, let’s address why the statute of limitations matters in bankruptcy. After all, bankruptcy wipes out pretty much all of your debts, so what’s the difference if they are too old to be collected—old and new debts will be discharged, right?
That is very true in Chapter 7 bankruptcy. But in Chapter 13, the number of creditors you have makes a difference. Your payment will often depend on the number of creditors you have, and if you do have to surrender any property, the amount of property you surrender will largely depend on how many debts you have.
That means that when a creditor says that you still owe them a debt that’s actually too old to be collected, you can and should object in the Chapter 13 bankruptcy. The collection of old debts can make a big difference.
How Long is Too Long?
Unfortunately, there is no one answer to the question of “how old is too old.” With credit cards or retail credit accounts, the answer is “depends on the agreement,” because every agreement will use its own choice of laws clause. That means that the agreement says what state law will apply—and as you probably guessed, most creditors will choose the law in the state that gives them the longest period of time to sue.
If Florida law does apply, Florida law says that a written contract has to be enforced within 5 years. However, many creditors (such as debt buyers) don’t have the original written agreement, and they will often rely on oral promises. In those cases, the time limit can be lowered to four years.
Four years is also the time limit for open accounts, such as credit cards, where you borrow, pay back, and borrow again, with no set time limit to pay the money back.
Promissory notes—often used in mortgages and sometimes car loans, as well as in business transactions—have their own set of rules which can be quite complex. The time limit to pay those back is 5 years, but the time starts ticking when the loan is actually accelerated or when you are in default.