If you want to protect yourself from the abusive practices of creditors and collectors, you need to learn the laws that are protecting you. This is especially true if you opted not to hire a professional to help with you get out of debt. You have the FDCPA (Fair Debt Collection Practices Act), Credit Card Act and the TSR (Telemarketing Sales Rule). These are only a few of what you should know.
One of the laws that consumers must know about is the statute of limitation. This refers to the time frame wherein a person can take any form of legal action because of an event. In light of your debt, this refers to the time wherein your creditor or collectors can sue you in court for not paying your debts. It encompasses other events but let us focus on your debt situation.
The moment you stop paying your debts, the statute of limitations begin to start counting. For instance, in Texas, they have 4 years. When you start defaulting on your payments on June 2013 and the creditor failed to take legal action by June 2017, you don’t have to worry about that particular debt anymore.
In case your creditor calls you to collect on a debt that is past the statute of limitation, know that you do not have to pay. If you send even one payment, the time will reset and you have to wait for another couple of years to be protected by this law.
Debts that passed this time frame are called time-barred debts. This does not mean your debts are erased. It just means you don’t have to worry about being sued in court for it. The creditor cannot sue you for wage garnishment or something similar if the statute of limitation had passed. At least, if you are able to show proof of when you stopped paying your dues and the court will decide if it is within the statute of limitation or not.
There are 4 types of debt categories that usually have varying statute of limitations.
Oral agreement. These are the debts that are only binding through oral contract.
Written contracts. This is when the oral agreement goes beyond and into a written state. It means you have written proof of your agreement.
Promissory note. This is a written agreement that specifically states when the date is to be paid back and other details like the interest rate, etc.
Open-Ended accounts. This a contract that is revolving and does not really end until the account is closed off. It means the borrower and continuously borrow and repay what they owe until the credit limit is reached. Credit cards are the best example of this.
Each state have varying statute of limitations. In some of them, the time is the same for all categories. In some, the written and promissory notes have the highest. For instance, in Texas, all categories follow a 4 year statute of limitation. In Alabama, the oral, written and promissory all follow 6 years while the revolving debt is only up to 3 years.
The lowest time frame is 2 years while the highest is 15 years. In California, the statute of limitation for oral agreements is only 2 years. In Kentucky, both written and promissory notes follow a 15 year period.