Function

• A statute of limitations on an unpaid debt helps creditors, lawyers and judges know how much time a debtor has after he has defaulted on his debt before he can no longer be sued. Each state has unique laws and regulations regarding the statute of limitations.
  
  

Significance

• Once the statute of limitations on a type of unpaid debt has passed, a creditor, lender or a lawyer representing a creditor or lender can no longer win a judgment against you for the debt, as long as you show up to your hearing and let the judge know that the statute of limitations on the debt has passed. This does not mean that they cannot try to sue you, so it is important to attend your hearing and let the judge know the status of the debt.
  
  

Types

• Unpaid debt is divided into four categories for the purpose of determining a statue of limitations. These categories are open accounts, written contracts, oral agreements and promissory notes. Many states choose to set a different statute of limitations for each category of unpaid debt.
  
  

Considerations

• Credit card debt, which is usually considered an open account according to BCS Alliance, has a statute of limitations of just three years in Alabama, but 10 years in Rhode Island. Therefore, Rhode Island residents can be taken to court over their unpaid debt seven years later than Alabama residents.
  
  

Time Frame

• A statue of limitations begins after a debt has remained past due for more than 30 days. From that point, on the statute of limitations “clock” continues to run, as long as no other payments are made on the debt and you do not enter into a payment agreement on the debt. If either of these happens, it can reset the statue of limitations “clock” on the debt, no matter how old the debt is.