![]() In most cases, the statute of limitations is three to six years, though it may be longer for some types of debt.Īfter the statute of limitations has passed, collectors can no longer take you to court over the debt however, they can still try to collect by contacting you directly. Even if you owe as little as $100, a lender or collection agency can take you to small claims court, provided the statute of limitations-the time period in which a creditor is allowed to sue over a debt-has not run out. If you’ve had a loan in default for months or years without paying, your creditor may attempt to settle the debt by pursuing legal action against you. In certain extreme cases, on top of damaging your credit reports, a default may land you in court. In reality, the lender has probably sold the debt to a collection agency that will soon come after you for the money. At that point, it can be tempting to think your lender has forgiven the debt, but don’t be fooled. Then one day, the calls and letters may stop altogether. ![]() In the immediate aftermath, you’ll likely receive a stream of communications from the lender as the account goes 30, 60 and 90 days past due. However, if you’re having extended financial difficulties - for example, you or a partner becomes unemployed and has trouble finding a new job, or a family member faces an unexpected medical hurdle - you may find yourself going months without touching the defaulted loan. You should make an effort to repay the defaulted loan or credit card debt whenever possible. A default will stay on your credit reports for up to seven years, and prospective lenders will be far more reluctant to extend credit to you. The impact of a default on your credit history, and by extension your credit scores, can be both catastrophic and long-lasting. It goes without saying that defaulting on any debt is never good however, if a default is your only option to avoid eviction or another equally serious outcome, there are things you should know and steps you can take to minimize the damage to your credit scores and other aspects of your finances. Even if you’ve prioritized your debts appropriately and exhausted all alternatives, a default may still occur in a worst-case scenario. ![]() ![]() Despite your best efforts, there may come a day when defaulting-ceasing all payments-on one or more of your loans or credit card debts will become unavoidable. ![]()
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