A statute of limitations is a mechanism that sets the maximum time after an event that legal proceedings based on that event may be initiated against a debtor. The statute of limitations period starts on the last date of activity on the account—keep in mind this date could be different from the date the account went past due. The statute of limitations varies from state to state and based on the type of debt. In Indiana, the statute of limitations varies anywhere from two (2) years to twenty (20) years. However, most landlord-tenant contracts for the payment of rent are six (6) years.
2. What Can a Debtor Do to Restart the Statute of Limitations for Their Debt?
Suppose a tenant moves out of a rental property and owes the landlord $1,000 in unpaid rent. As mentioned before, the statute of limitations in Indiana to sue the tenant for the unpaid rent is six (6) years. However, certain actions by the debtor can restart the statute of limitations on a dormant account, including:
- Acknowledging that he/she owes the debt
- Making a payment
- Entering a payment plan
- Making an agreement to pay
- Making a charge on the account
So suppose three years go by and you never hear from the tenant. Then in Year 4, the tenant calls and wishes to make payment arrangements. Guess what? You now have six years from the date of the phone call to use the court system to force the tenant to pay. The statute of limitations starts back at zero.
3. Does a Debtor Still Owe After the Statute of Limitations Has Expired?
Answer: Yes. There are only a few events that truly erase a debtor’s obligation to pay a debt, which include:
- Cancellation from the creditor
- Discharge in bankruptcy
- Paying the debt in full or partial satisfaction pursuant to a payment plan from the creditor
The expiration of the statute of limitations does not extinguish a debtor’s legal responsibility for paying the debt. However, after the statute of limitations has run, the creditor can no longer use the court system to force the debtor to pay the debt.
4. Can a Creditor Contact a Debtor after the Statute of Limitations Has Expired?
Answer: Yes. The statute of limitations only limits the amount of time a court will force a debtor to pay a debt. The statute of limitations cannot stop a creditor from trying to collect the debt from a debtor. However, a creditor must be careful to comply with the Fair Debt Collection Practices Act, or be subject to a civil penalty of $1,000 per violation.
The Fair Debt Collection Practices Act (FDCPA)
For more information on the FDCPA, click here.