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A debt collection limitation period, also called the statute of limitations, is the time creditors or collectors have to sue for unpaid debts. This timeframe varies by state and type of debt, typically ranging from 3 to 6 years, but can extend up to 10 years or more in some cases. Once the period expires, the debt becomes "time-barred", meaning collectors cannot legally sue but may still request voluntary payment.
Key points to know:
Understanding these rules is critical for debt buyers, sellers, and collectors to manage compliance risks and assess portfolio value effectively.
Understanding how debt collection limitation periods are calculated involves three key factors: the type of debt, the state laws that apply, and the event that starts the countdown.
First, the type of debt plays a crucial role. Debts generally fall into one of four categories:
Each type has its own timeline. For instance, written contracts often have limitation periods ranging from 4 to 15 years, while oral agreements typically fall between 2 and 10 years.
Next, state laws dictate the specific timeframes. These laws vary widely. For example, California limits oral agreement claims to 2 years, while Maine allows up to 20 years for promissory notes. Kentucky permits as much as 15 years for written contracts and promissory notes. Typically, the state where the debt originated governs the limitation period, but some contracts include provisions that specify a different state’s rules.
Finally, the accrual date - the moment the clock starts ticking - is critical. This is usually triggered by the first missed payment, the last voluntary payment, or a breach of the contract. Even a small error in calculating this date can have major consequences. As Tratta explained:
"A single miscalculation can turn a recoverable account into a compliance violation, trigger disputes, or invalidate a settlement conversation entirely".
In some cases, the limitation period can be tolled, or temporarily paused. This happens under specific conditions, such as when a debtor moves out of state, files for bankruptcy, or is legally incapacitated (e.g., being a minor or mentally incompetent). During these periods, the countdown stops until the situation changes.
This framework sets the stage for understanding how certain debtor actions can reset the limitation period entirely.
While tolling pauses the clock, certain actions by the debtor can fully reset the limitation period. This is referred to as "revival", and it differs from tolling in that it starts the clock over from zero.
The most common trigger for revival is a partial payment. Even a small payment, made in good faith, can restart the statute of limitations in many states. For instance, both Florida and Ohio recognize voluntary payments as actions that reset the clock. The Consumer Financial Protection Bureau warns:
"Making a partial payment or acknowledging you owe an old debt, even after the statute of limitations expired, may restart the time period".
Another trigger is a written acknowledgment of the debt. While the requirements vary by state, a signed acknowledgment is often required. In New York and Illinois, for example, a written acknowledgment is necessary to restart the limitation period. In Georgia, a new promise to pay must also be in writing. Although some states may allow verbal acknowledgments, written evidence is generally more reliable in legal disputes.
Finally, debt restructuring or new payment plans can create a new limitation period. When a debtor agrees to modify payment terms, it’s treated as a new contract with its own timeline. States like Pennsylvania and Florida recognize these agreements as starting fresh limitation periods. This means restructuring doesn’t just extend the old debt - it establishes a new legal obligation.
For debt buyers and portfolio managers, understanding these revival mechanisms is essential. Accounts nearing their expiration date require careful handling to avoid accidentally resetting the clock. At the same time, debtor actions that revive old debts can open new opportunities for recovery. These factors play a significant role in evaluating portfolio risk and potential value.
Debt Collection Statute of Limitations by State and Debt Type
When it comes to consumer debt, the statute of limitations typically falls between 3 and 6 years in most U.S. states. However, there are outliers on both ends of the spectrum. For instance, states like New Hampshire, Maryland, Mississippi, and North Carolina cap the limitation period for credit card debt at just 3 years. On the other hand, places like Rhode Island, Kentucky, and Louisiana allow up to 10 years for various debt types. Some states even extend these timelines for specific debts, such as promissory notes, showcasing the wide range of legal approaches.
Regional differences play a big role in how these laws impact debt recovery. In the Northeast, states tend to enforce moderate limitation periods under tighter regulations. The South, however, shows a lot of variation depending on the debt type, making it crucial to classify debts accurately. In the West, there's a strong distinction between open accounts (like credit cards) and written contracts, which means proper categorization is key for successful recovery efforts. Meanwhile, the Midwest presents a mixed picture - shorter timelines for open accounts but much longer ones for written obligations. These variations aren't just legal quirks; they directly affect trading strategies, portfolio risks, and valuation.
Another layer of complexity comes from "choice of law" clauses in original credit agreements. While the originating state's law usually determines the limitation period, these clauses can specify a different state's rules. This becomes especially tricky when debtors move to a new state. For debt buyers, it’s crucial to verify not only the debtor's current location but also where the original contract was formed and which state’s laws apply.
The table below breaks down limitation periods for common debt types - credit cards (open accounts), medical debt (oral or implied agreements), and auto loans (written contracts) - in key states.
| State | Credit Card (Open Account) | Medical Debt (Oral/Implied) | Auto Loan (Written Contract) |
|---|---|---|---|
| California | 4 years | 2 years | 4 years |
| Texas | 4 years | 4 years | 4 years |
| Florida | 4 years | 4 years | 5 years |
| New York | 6 years | 6 years | 6 years |
| Illinois | 5 years | 5 years | 10 years |
| Pennsylvania | 4 years | 4 years | 4 years |
| Ohio | 6 years | 6 years | 8 years |
| Georgia | 4 years | 4 years | 6 years |
| North Carolina | 3 years | 3 years | 3 years |
| Michigan | 6 years | 6 years | 6 years |
This comparison highlights how different debt types are treated based on documentation and state laws. For example, Illinois allows a 10-year limitation period for auto loans, which is double the time allowed for credit card debt. Similarly, Ohio grants 8 years for auto loans compared to 6 years for credit cards. These longer timelines reflect the importance states place on written contracts, which reduce disputes over terms. For debt traders, this means auto loan portfolios in states like Illinois and Ohio tend to hold their value longer than credit card portfolios.
North Carolina is unique in its uniform 3-year limitation period for all debt types, creating a sense of urgency to act quickly on collections. In contrast, New York offers a consistent 6-year window across all categories, which simplifies portfolio management but still requires careful monitoring as debts approach the end of their collection period. Knowing these state-specific rules is critical for assessing portfolio value and planning effective strategies.
Under Regulation F (12 CFR § 1006.26), debt collectors are strictly prohibited from taking legal action on time-barred debts. This rule is absolute - collectors can’t claim ignorance of an expired statute as a defense. As the Consumer Financial Protection Bureau (CFPB) clearly states:
"A debt collector must not bring or threaten to bring a legal action against a consumer to collect a time-barred debt."
However, in bankruptcy cases, collectors are allowed to file a proof of claim for time-barred debts. Outside of bankruptcy, any communication that hints at or threatens legal action could violate the FDCPA. Such violations can result in penalties of up to $1,000 per incident, and consumers have one year to file a lawsuit against the collector.
Collectors are still permitted to reach out to consumers through phone or mail to request payment. However, they must not misrepresent the debt’s legal status. During these interactions, collectors are required to provide validation information - such as the amount owed, the name of the creditor, and the consumer’s rights to dispute the debt - either at the first contact or within five days. While certain actions by the debtor might restart the statute of limitations, collectors themselves cannot revive the statute under the FDCPA.
Debt buyers, like collectors, are also held to strict standards when dealing with time-barred debt. Even if a debt buyer was unaware - or had no reason to know - that a debt was time-barred at the time of purchase, they can still be found in violation of the FDCPA.
The CFPB has been particularly active in addressing "zombie debt", including dormant second mortgages linked to the 2008 financial crisis. In May 2023, the CFPB issued an advisory opinion clarifying that judicial foreclosure actions count as debt collection. This means debt buyers are prohibited from threatening or initiating foreclosure on time-barred second mortgages.
Debt buyers must exercise extreme caution when purchasing debt portfolios. This includes verifying the exact age of each debt and identifying the relevant state’s statute of limitations. Additionally, all collection communications should be carefully reviewed to ensure they don’t contain language that could be interpreted as a legal threat. Since state laws on debt revival vary, understanding these nuances is essential. These regulatory requirements highlight the importance of thorough risk management when dealing with time-barred debt.
The timeline of a debt's expiration has a direct and often dramatic impact on its market value. As a debt approaches the end of its limitation period, its value plummets. This drop is tied to the loss of legal leverage - once a debt becomes time-barred, creditors can no longer pursue a court judgment to enforce payment. Without the threat of legal action, collecting on the debt relies entirely on voluntary repayment, which most debtors are unlikely to offer.
This reality is reflected in how portfolios are priced. Accounts nearing expiration are heavily discounted due to their reduced recovery potential, higher compliance risks, and the need for alternative negotiation strategies. The Texas State Law Library succinctly explains this dynamic:
"Once the time period is up, a person is prohibited from filing suit to recover the debt... creditors and debt buyers lose their most powerful way of collecting - a lawsuit."
One way to preserve the value of a debt nearing expiration is to secure a court judgment before the statute of limitations runs out. Judgments often have enforcement periods lasting 10 to 20 years, and they come with powerful enforcement tools like wage garnishment and bank levies. For instance, in early 2026, a California property management company acted just eight months before a $42,000 debt's four-year limitation expired. By obtaining a judgment and domesticating it in Arizona, they recovered $38,000 within 60 days.
However, time-barred debts introduce another layer of complexity: compliance risks. These risks make portfolios even less attractive to buyers, further lowering their value.
Effectively managing portfolios with near-expiration debts requires a shift in approach. Traditional litigation-focused strategies give way to methods aimed at voluntary resolution. Early identification of accounts nearing expiration is key - flagging these accounts allows for adjustments in outreach scripts and settlement strategies, ensuring compliance with legal requirements.
Accurate documentation becomes even more critical when trading these portfolios. The ability to confirm the "Date of First Delinquency" or the last payment date directly impacts pricing. Incomplete or inaccurate records lead to valuation errors and compliance risks. As Tratta.io warns:
"A single miscalculation can turn a recoverable account into a compliance violation, trigger disputes, or invalidate a settlement conversation entirely."
State-specific rules further complicate matters. For example, some states, like Texas, impose specific notice requirements for collecting on time-barred debts. Additionally, "borrowing statutes" can shorten the limitation period by requiring the application of the shorter time frame between the forum state and the state where the debt originated.
For debts with time left for legal action, the most effective strategy is to prioritize converting them into judgments. Filing lawsuits before the limitation period expires transforms a declining asset into a long-term enforceable claim. To ensure enough time for skip tracing and service of process, filing deadlines should be set at least six months before expiration. Judgments provide access to tools like garnishments, levies, and property liens, significantly extending the debt's value.
When evaluating portfolios, understanding "revival" rules is also critical. In some states, a partial payment can reset the statute of limitations, while others - such as Texas - do not allow revival of time-barred debts through payment. Misjudging these nuances can lead to overestimating a portfolio's worth, so careful attention to state-specific laws is essential.
Managing limitation risks starts with understanding how each debt is classified before purchase. Debts can fall into categories like written agreements, oral contracts, promissory notes, or open-ended accounts, and each type has a different limitation period based on state laws. For instance, in New York, a medical bill classified as a written contract might have a six-year limitation period, while an oral agreement could expire in just three years.
Pinpointing the exact trigger date is essential. This could be the date of the last payment, the most recent account activity, or the date of breach. Without this information, it's easy to miscalculate whether a debt is still enforceable.
Choice-of-law provisions can complicate matters further. Take this scenario: if a debtor moves from Kentucky, where written contracts may have a 15-year limitation period, to North Carolina, where the timeframe might be shorter, determining which state's law applies becomes critical. Always check the contract for jurisdictional clauses and review borrowing statutes that could impose a shorter limitation period.
Tolling events can also pause the clock on limitation periods. Events like bankruptcy filings, military service, or a debtor's absence from the state can extend the enforceability window. Additionally, some states allow for statutes to restart under certain conditions, such as partial payments or written acknowledgments. However, keep in mind that states like Texas explicitly prohibit the revival of debts for buyers.
Lastly, organize your portfolios by expiration status. Flag accounts that are already time-barred and separate them from those nearing expiration. This method ensures compliant outreach and helps prioritize accounts with litigation potential. To avoid last-minute issues, set a "must-file" litigation deadline at least six months before the actual expiration date to allow for pre-litigation preparation.
These steps form a strong foundation for leveraging platform tools to further manage risk effectively.
Once you've established solid due diligence practices, platforms like Debexpert can help minimize limitation period risks. For buyers, Debexpert's portfolio analytics highlight time-sensitive accounts by analyzing key data points like the dates of first delinquency and last payment. The platform's real-time communication tools let buyers ask questions about the age, jurisdiction, and documentation quality of debts before bidding. This reduces the chances of acquiring portfolios with miscalculated expiration dates or missing records.
For sellers, Debexpert offers presale marketing and portfolio presentation tools that allow them to showcase strong documentation and favorable limitation period statuses. By organizing files clearly and including jurisdiction-specific details upfront, sellers can reduce buyer uncertainty and demonstrate the value of accounts still within their enforceable windows.
These tools, paired with thorough due diligence, provide a comprehensive approach to managing limitation period risks effectively.
Grasping the concept of limitation periods is essential for anyone involved in buying or selling debt. These time limits - typically between 3 to 6 years, depending on state laws and the type of debt - determine whether a debt can still be pursued through legal action. While statutes in 47 states prevent lawsuits and wage garnishments on time-barred debts, the debt itself isn’t erased, and non-judicial collection efforts can still continue.
This legal framework carries weighty financial consequences. For instance, time-barred debts often sell at heavily discounted rates due to their limited recovery potential. Misunderstanding these limitation periods can turn otherwise recoverable debts into compliance risks, especially since the FDCPA strictly forbids threatening litigation on debts where the statute of limitations has expired. Knowing these rules not only helps avoid legal troubles but also aids in smarter portfolio management and valuation strategies.
Managing these risks effectively calls for meticulous documentation of the Date of First Delinquency, precise segmentation of portfolios based on state laws, and a clear understanding of revival triggers - like partial payments - that can reset the limitation period in many states. In states like Mississippi, North Carolina, and Wisconsin, the stakes are even higher, as expired statutes of limitations fully extinguish the debt, making any further collection attempts illegal.
To tackle these complexities, tools like Debexpert’s platform offer practical solutions. With features like portfolio analytics to flag time-sensitive accounts, secure file sharing for verifying documentation, and real-time communication tools for clarifying jurisdictional details, buyers and sellers can navigate the intricacies of limitation periods more confidently and stay compliant.
To figure out the statute of limitations for a debt, you need to pinpoint where the debt was created or where legal action is taking place. This is often tied to the state where the creditor or debt collector is based or where the contract was originally signed. Review your credit agreement for any specifics, as it might outline relevant details. Keep in mind that making a partial payment or acknowledging the debt can reset the clock on the limitations period. For clarity, double-check this information with credit reporting agencies.
The best way to determine the start date for the limitation period is by referring to the date of first delinquency (DOFD). This date usually signifies when the limitation period begins in most jurisdictions and is considered more dependable than using the date of the last payment to establish when the countdown starts.
Yes, agreeing to a payment plan or engaging in settlement discussions can sometimes restart the statute of limitations on a debt. This happens if those actions are viewed as a partial payment or an acknowledgment of the debt, effectively resetting the clock on how long a creditor can legally pursue collection. It's crucial to seek legal advice before making any payments or entering settlement talks to fully understand the potential consequences.
More than a decade of Ivan's career has been dedicated to Finance, Banking and Digital Solutions. From these three areas, the idea of a fintech solution called Debepxert was born. He started his career in Big Four consulting and continued in the industry, working as a CFO for publicly traded and digital companies. Ivan came into the debt industry in 2019, when company Debexpert started its first operations. Over the past few years the company, following his lead, has become a technological leader in the US, opened its offices in 10 countries and achieved a record level of sales - 700 debt portfolios per year.
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