How does the Statute of Limitations (SOL) work?
Many people simply don't understand how Statute of Limitations on debt, so they
pay off their creditors even when they don't have to just because they show up
on their credit report. The fact is if the SOL on your open account has
expired, in the eyes of the law you do not owe the money anymore. If your
creditor has not attempted to sue to collect this debt in the allotted time, it
is vacated under the U.S. Statute of Limitation on Debt laws.
Let's Calculate your SOL
It may seem to that the account in question is so old, so how do you really
know if it falls into the parameters of the Statute of Limitations laws. You can
figure out the answer with a few simple calculations. We will assume you
stopped making payments on a written contract for a car loan in California, in
January of 2004. Now let's:
1. Add six months to the last date you made any payment on the account
Ok we are at June of 2004 now.
2. Find your state on the chart below, match the type of account and add the
California allows 6 years for written contracts so now we arrive at June of
2008. Do the math. If there have been no efforts by the creditor to collect
this outstanding debt before June, 2008, you are in the clear and cannot be
sued. Yes is sounds too good to be true. Keep in mind that this law affects the
actual money you owe and the creditors' ability to sue you for it. It will not
remove items off your credit report. You must use other methods of cleaning up
your credit if you wish to remove these credit dings from your credit history.
Statute of Limitations Chart by State
(all numbers in Years)
An Oral Contract
An oral contract, while not the best contract you want to walk in to a
courtroom with for obvious reasons, is still a contract and legally binding.
These types of agreements are typically referred to as "hand-shake" agreements
or non-written contracts.
A written contract is just what it sounds like, and agreement to pay someone
back that is written out in no uncertain terms and signed by both parties.
What are Promissory Notes?
The phrase "Promissory Notes" sounds a little misleading than what it really
is. It sounds like a note you leave to borrow $20 off your parents for the
movies when you're a kid. In reality Promissory Notes are the most common form
of written contracts and are written to reflect exactly how much money is being
loaned and how much interest will be paid. Mortgage or car loans are examples
of Promissory Notes.
Open-ended or Revolving Accounts
These accounts do just as they promise; they remain open and active. The most
common type of an open ended account is your credit cards. In fact, under U.S.
law ANY credit card must be termed and open-ended account under the Truth