The "common knowledge" on the Internet is that creditors can't
sue you for "old debt." Like most things that are "common
knowledge," this is only partially accurate and the correct information
is not that commonly known.
In Illinois, creditors lose the ability to collect on debts by filing a
lawsuit after the statute of limitations has run. This does not mean that
the debt is extinguished, it simply means that borrowers have an absolute
defense to a collection lawsuit once the limitations period has lapsed.
Oral contracts and open-ended credit agreements have a five-year statute
of limitations. (See 735 ILCS 5/13-205.) This does not always mean that
creditors must sue within five years of the debt being created. For example,
credit card accounts are subject to the five year statute of limitations.
However, the statute of limitations begins to run from the date of the
last activity on the account.
Dave is issued a Capital One credit card in 2007. He uses the card until
August 1, 2009, then stops using the card. However, Dave keeps making
his minimum payments until June 5, 2010, when he can no longer afford
to make them. Dave stops making his payments and defaults. Based on these
facts, Capital One has until June 5, 2015 to sue Dave to collect the balance
due on its account.
However, if Dave speaks to a Capital One representative on January 1, 2012
and acknowledges that he owes the money, or promises to make a payment,
he has just reset the clock on the statute of limitations. In that case,
Capital One now has until January 1, 2017 to file its collection action.
Each time Dave makes a payment, promises to pay, or otherwise acknowledges
his debt, the clock resets.
Some types of debt have a longer statute of limitations. Debts based on
written contracts and promissory notes have a 10 year statute of limitations.
(See 735 ILCS 5/13-206.) They are also subject to the same "revival"
conditions as the ones applied to Dave's Capital One account.
For example, let's pretend that Dave borrowed $10,000 from Harris Bank
on September 1, 2012. On that day, he signs a promissory note indicating
that he will make monthly payments on the note for a period of 5 years.
At the end of the loan's lifetime, there is a balloon payment of $2,500
due. Dave makes his payments until the balloon payment is due on August
31, 2017. Dave fails to make the balloon payment.
Now that the loan is in default, Harris Bank has ten years to sue Dave.
This means that Harris has until August 31, 2027 to file a lawsuit against
Dave. However, if Dave makes a partial payment on May 1, 2018, then Harris
has until May 1, 2028 to sue.
So why is this important? Many creditors will sell old, discharged, and
charged-off debts to third-party debt buyers. These companies buy these
debts for pennies on the dollar. They then attempt to collect the debts
knowing that if only a small percentage of borrowers make payments, they
will make a profit.
Do not be fooled. If a debt collector that you've never heard of attempts
to collect a debt from you, make sure to find out the source of the debt.
Assuming that you actually do owe the money, if the debt is too old for
the collector to file a lawsuit, then you have an absolute defense against
a collection lawsuit based on that debt.
Under no circumstances should you promise to make a payment or admit to
owing the money -- doing so will reset the clock and give the debt collector
the ability to sue you and obtain a judgment against you. Similarly, just
because you have an absolute defense against the lawsuit does not mean
you can ignore it if the debt collector sues you. You must appear in court,
follow the proper formalities, and seek the dismissal of the lawsuit.
If you are facing a debt collection lawsuit that you feel is based on a
debt that is too old, contact a licensed attorney to discuss your options.