There are two main categories that divide time limits related to debt: Collection-related time limits and reporting-related time limits. The first ones have to do with repayment of debt while the second ones have to do with reporting negative information on your credit report.
It is the legal right of a lender or any third-party collection agency to demand or request the payment of debts. They can demand it through letters and phone calls regularly until the debt is completely paid. But, according to the Fair Debt Collection Practices Act, a borrower can prevent a third-party collector from making such communication and stop him from making these routine demands.
Basically, the older the debt, the less stronger are its collection efforts. And, in this case, it is also possible that the lender or collector will forgo collection easily. Moreover, if the debt is not secured by any kind of property (eg a car), then, they have no means to force a borrower to clear it without filing a lawsuit.
Time Limit For Lawsuits
The creditor can take recourse to filing a lawsuit if the debtor is consciously delinquent in paying a debt of a reasonable amount. The time limit set for this act is called the statute of limitations, which is fixed by individual states. The statement of the state in which the borrower lived when he committed this delinquency, will be applied at that time.
If the statute of limitations covering a debt ends, it does not mean that the lawsuit will be dismissed. It will only offer an absolute defense, wherebe the borrower just needs to file a response with the court to take note of this fact (state that the time limit has been excluded), so that the suit can be dismissed.
If a lender files a lawsuit and wins it too, then he can use a different statute of limitations for enforcing that judgment. There is also a time limit for enforcement court judgments. In the case of federal taxes, it is ten years from the date of assessment for delinquent amounts, if a lien has not been filed. For instance, tax liens on real estate stay till the previous taxes are cleared. But in the case of delinquent federal student loans, there is no statute of limitations or any other time limit for lawsuits or any other enforcement action.
Time Limits on Credit Reporting
The federal Fair Credit Reporting Act fixes the time limits for the appearance of different kinds of information on consumer credit reports. With respect to bad credit time limits, it is very important as it will determine for how long a particular delinquency will affect your credit.
Besides tax liens and federal student loans, the duration of the credit reporting time limits is not affected by making full or partial payments on bad debts. On the basis of the original dates, all other items should end on schedule, irrespective of when or whether they are paid. Earlier, there was a lot of confusion regarding the beginning point, which could have been defined as the date of the last dealing on the account. It, consequently, provided the opportunities of re-setting the clock on an old bad debt by making a payment on it, or through paper shuffling by collection agencies.
This issue became clear only after the 1996 amendments to the FCRA, which fixed a particular starting date in relation to the original delinquency date. Inquiries can be made over a period of two years. The starting point is different for late payments, collection accounts and bankruptcy.