When you are in debt and cannot pay it off, a
creditor legally can collect their money from you. We all know how
they do it, from letters to phone calls asking to you to pay it off.
Statue of limitations gives creditors certain number of years to
collect their money. If they are not able to collect that money in a
certain years, legally they no longer come after you.
Let's say that you live in Alabama and you have
applied for credit card with limit of $5,000.
For some reasons you are not able to repay that
money on time and you fall behind your payment. Creditor starts to
call you and send you letters that your account is in collection.
Here is a tricky part. Creditors in this case has right to collect
their money in 6 years period, as stated in our table below. After 6
years they can no longer come after you and it will take anywhere
2-5 additional years until negative collection will be removed from
your credit report.
Ok, now about the tricky part. How does the
creditor know when the 6 year period start? It is not necessarily
the day you applied for your credit card. It is the day you stopped
paying off your bill. But here is the tricky part. Let's say that
you got a credit card in January 2000, than in April 2000 you
stopped paying your credit card. You are in default, and this is the
start of 6 years period for creditor. Now let's say that in January
2001 you make a payment, thinking you would like to pay it off.
Well, the 6-year period is erased and starts again when you default.
This process is called "restarting a clock" as called by most
creditors.
Once you default on a credit card make sure you
fully understand statue of limitations. Our table below shows
limitations for each state.
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