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 widely known.
In Illinois, creditors lose the ability to collect on debts by filing a lawsuit after the statute of limitations has passed. 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.
For example, let’s look at “Dave.” Dave is issued a Capital One credit card in 2015. He uses the card until August 1, 2017, then stops using the card. However, Dave keeps making his minimum payments until June 5, 2018, 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, 2023 to sue Dave to collect the balance due on its account.
However, if Dave speaks to a Capital One representative on January 1, 2020 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, 2025 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 February 1, 2020. 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, 2025. 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, 2035 to file a lawsuit against Dave. However, if Dave makes a partial payment on May 1, 2026, then Harris has until May 1, 2036 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.