What is the Statute of Limitations?
Statutes of Limitations: A statute setting a time limit on legal action in certain cases.
How the Statute of Limitations Affects Your Credit and Finances
The above definition describes in detail what the statute of limitations (SOL) is. There are many misconceptions on what this means to a consumers credit report as well as their finances.There are 2 time lines to address to really understand the statute of limitations.
The Fair Credit Reporting Act allows for negative (and positive) information to be reported against you for up to 7 years from the date the incident occurs. If the item is a Bankruptcy the information can be reported for 10 years and Tax liens can report for up to an atrocious 15 years!
The statute of limitations differs from the amount of time an item can be reported on your credit report. SOL refers to the amount of time a creditor has to take legal actions against you. The common misconception is that a collector cannot attempt to collect on a debt past the SOL and this is not true. A collection never just “goes away”, a collection agency or creditor can attempt to collect on it for as long as they would like, the SOL just sets the date that they are allowed to take you to court for it.
A best practice when trying to pay collections or old derogatory accounts off is to wait until you can pay them off in 1 lump sum. Making a partial payment on an account can reset the statute of limitations and give the creditor the right to press legal actions sometimes 10 – 11 years after the incident.
Here are the key points to remember about Statute of Limitations:
- Your debt never magically disappears
- SOL determines how long a creditor or collection agency has to press legal actions
- Just because an account has passed the statute of limitations does not mean that it cannot be reported
- Making a partial payment resets the statute of limitations
- Even if an account is past the statute of limitations – you still technically owe the money