Statute of Limitation, also known as SOL is the time frame within which the creditor must start the process of debt collection in order to recover the debt. If the Statute of Limitation on the debt expires, the creditor cannot recover the debt legally and the debtor no longer remains liable to repay the debt. Normally, the SOL starts after 180 days from the date you became delinquent and continues for 3 to 10 years depending upon the state you live in. However, the creditor may take into account the state where the agreement was signed while determining the SOL, before he sue you for the debt.
The debt agreements are classified into 4 categories – oral contracts, written contracts, promissory notes and open ended accounts.
Oral contract: It is a verbal agreement between the creditor and the debtor by which the debtor agrees to repay the money borrowed. It is a legal contract, although it may be difficult to prove in the court.
Written contract: Under this type of contract, you need to sign a loan application form accepting the terms and conditions under which the loan is offered to you. Personal loans and auto loan agreements can be included under written contract.
Promissory notes: It is just like a written contract, but with payments scheduled on the agreement. Home loans fall under promissory notes.
Open ended accounts: They include open ended accounts like credit card debts.
Statute of limitation is a powerful weapon for debtors to protect themselves from paying back an old debt. It may be noted that although it is true that the debtors are not liable to pay off the debt after the SOL expiry, the negative listing may not be removed from the credit report and may stay there for seven years and 180 days from the date of delinquency. You should always take note of the fact that before you pay off the debt, you should check the SOL status of your debt. If it has expired, you should not make even a single payment towards it, because even a single small payment may restart the SOL and the creditor may sue you to recover the entire debt. But if you do not make a payment after the SOL expiry, the creditor can never recover it.