What Is Time-Barred Debt?

Time-barred debt is money a consumer borrowed and didn’t repay but which is no longer legally collectable because a certain number of years have passed. Time-barred debt is also known as debt that is beyond the statute of limitations. Each state has different rules about the length of time during which a debt remains collectible. In some states, it is as short as three years, and in others, it is as long as 10 years. Creditors and debt collectors may still attempt to sue consumers to collect time-barred debt, but they should not be able to win in court since the statute of limitations has run out.

Key Takeaways

  • Time-barred debt is typically debt that has past the statute of limitations and cannot be collected.
  • The statute of limitations for collecting credit card debt payments can range from three to 10 years.
  • Borrowers might have a moral obligation to repay time-barred debt, but not a legal obligation.

How Time-Barred Debt Works

Time-barred debt usually comes up when a collector contacts a borrower about repaying an old debt. Because a borrower is not legally obligated to repay time-barred debt, they should deal with debt collectors carefully when it comes to old debts. If a borrower acknowledges that they owe the debt or makes even a small payment on it, it will no longer be time-barred and the borrower will have to repay it. In fact, a particular breed of debt collectors, called zombie debt collectors, specialize in trying to collect time-barred debts. These debt collectors buy very old debt for as little as 2 cents on the dollar. Then, they get to keep 100% of whatever they manage to collect.

Rules Governing Time-Barred Debt

The statute of limitations for credit card debt repayment is governed by the individual states. It can range from three to 10 years depending on a borrower’s state. Borrowers can check their state’s legislation here to understand the time-frame for time-barred debts. It is important that a borrower be aware of the statute of limitations for credit card debt in their state in order to appropriately respond to debt collectors.

Many credit card debt collectors may not have aggressive debt collection policies allowing unpaid debt to pass without repayment beyond a state’s statute of limitations. If a debt collector contacts a borrower about a debt that they think might be time-barred, the borrower should request written verification of the debt to do further due diligence. The borrower can then decide whether they want to dispute the debt because the statute of limitations has expired, repay the debt because they feel obligated or want to improve their credit score, or compromise with the collector by settling the debt for less than they owe.

If a borrower owes a debt that is time-barred, they might feel a moral obligation to repay it even if they no longer have the legal obligation to repay it. However, if they pay the debt collector who is contacting them about the money, the payment will not go to the creditor originally owed but rather to a third-party, that has purchased the debt. Still, because bad debts stay on a credit report for seven years, a debt that is time-barred can continue to harm a credit score, so there might be practical reasons to repay it even if a borrower doesn’t have moral or legal reasons to do so.

Example of Time-Barred Debt

Let's assume Alice ran up a credit card to her maximum limit of $1500. Because Alice was in a bind, she was unable to keep up with the minimum payments. Her debt quickly became delinquent. This delinquency caused debt collectors to call Alice to try and recoup the funds. Three years later, the debt is now considered time-barred debt since she lives in the state of Alabama.