Kentucky Statute of Limitations and Student Loans

For Debts before 2014 Kentucky has a 15 year statute of limitations for written contracts. Every time you make a payment or admit you owe the debt the statute and the time is essentially resets. If the contract was made after 2014 the statute is 10 years.

Private lenders however are a different matter. Original private lenders often sell your debt. The loan holder, whether federal or private, has significant legal powers when pursuing collections against borrowers. For federal loans, loan holders can garnish wages for unpaid debts without a court order, while private loan holders must first obtain a judgment.

KRS 413.160 Actions upon written contract or not provided for by statute – Ten-year limitation. An action upon a written contract executed after July 15, 2014, unless otherwise provided by statute, and an action for relief not provided for by statute can only be commenced within ten (10) years after the cause of action accrued. Effective: July 15, 2014

The statute of limitations for student loans is either 15, 10, 6 years or the statute of limitations never expires

For a student loan, the statute of limitation however in Kentucky is almost always six years or the statute never expires. Federal student loans never have an expiration date. The federal government has a statute that exempts them from state statutes of limitations. However federal student loans rarely file a lawsuit to collect. When federal student loans sue they file in Federal Court not state court. The Department of Education can garnish wages, tax refunds, bank accounts, federal benefits, and even social security without going to court. Federal Law exempts DOE education debt from any state statute of limitations. An income driven repayment plan can help manage federal student loans more effectively by allowing borrowers to make payments based on their income, thus avoiding default.

Private lenders however are a different matter. Original private lenders often sell your debt.

If a loan is negotiable then Kentucky has a six-year statute of limitations.

Private loans are almost always negotiable. If anyone other than the original lender is suing the note had to be negotiated.

KRS 355.3-118 Statute of limitations.

(1) Except as provided in subsection (5) of this section, an action to enforce the obligation of a party to pay a note payable at a definite time must be commenced within six (6) years after the due date or dates stated in the note or, if a due date is accelerated, within six (6) years after the accelerated due date.

(2) Except as provided in subsection (4) or (5) of this section, if demand for payment is made to the maker of a note payable on demand, an action to enforce the obligation of a party to pay the note must be commenced within six (6) years after the demand. If no demand for payment is made to the maker, an action to enforce the note is barred if neither principal nor interest on the note has been paid for a continuous period of ten (10) years.

(3) Except as provided in subsection (4) of this section, an action to enforce the obligation of a party to an unaccepted draft to pay the draft must be commenced within three (3) years after dishonor of the draft or ten (10) years after the date of the draft, whichever period expires first.

(4) An action to enforce the obligation of the acceptor of a certified check or the issuer of a teller’s check, cashier’s check, or traveler’s check must be commenced within three (3) years after demand for payment is made to the acceptor or issuer, as the case may be.

(5) An action to enforce the obligation of a party to a certificate of deposit to pay the instrument must be commenced within six (6) years after demand for payment is made to the maker, but if the instrument states a due date and the maker is not required to pay before that date, the six (6) year period begins when a demand for payment is in effect and the due date has passed.

(6) An action to enforce the obligation of a party to pay an accepted draft, other than a certified check, must be commenced: (a) Within six (6) years after the due date or dates stated in the draft or acceptance if the obligation of the acceptor is payable at a definite time; or (b) Within six (6) years after the date of the acceptance if the obligation of the acceptor is payable on demand.

The mistake of making a payment

Making any payment within the statutory number of years re-sets the statute for another 6, 10 or 15 years. Some states have this rule in their Statute of limitations. Other states don’t. Kentucky does. The statute of limitations on private student loans varies by state, ranging from three to ten years, and this variation affects borrowers’ rights and the actions debt collectors can take after the statute expires. If a collector is pestering you about a 16-year-old debt, and you have not paid for 16 years, tell them that the debt is beyond the statute of limitations and they must stop contacting you about it altogether, effective immediately.

Understanding the Statute of Limitations

The statute of limitations is a legal time limit that creditors and debt collectors must follow when collecting a debt. This means that if you default on a private student loan, the lender or debt collector has a limited window to take legal action to collect the debt. Once the statute of limitations expires, the debt becomes “time-barred,” and the lender or debt collector can no longer sue you to collect the debt. Understanding the statute of limitations for your state is crucial in managing your private student loan debt effectively.

Additionally, while it is challenging to discharge student loans through bankruptcy, it is not impossible. This process requires meeting specific conditions and consulting a bankruptcy attorney to evaluate your financial situation.

The trap however is that when you are sued this defense is an affirmative defense. If you don’t put it into your first answer you waive the defense and have to pay the debt. Also if you pay the debt or admit you owe the debt the clock resets to the date of your last payment or admission. Each state is different about this but the majority rule is that the clock restarts.

Credit Reporting and the Statute of Limitations

The statute of limitations on private student loans also plays a significant role in credit reporting. Generally, private student loans will be removed from your credit reports after 7 years. However, if you acknowledge the debt, even by making a small payment, the time for reporting this debt also restarts.

This means the debt could remain on your credit reports for up to seven years, impacting your credit score and financial health for another 7 years. It’s essential to understand how the statute of limitations affects your credit reports and to manage your debt accordingly to avoid prolonged negative consequences.

What if I have a financial hardship?

Never miss payments when the monthly payments would be a low amount or zero. A federal government loan servicer loves to give you forbearances or deferments to keep you in debt. The years you can make low dollar monthly payments are the years you want to make monthly payments in.

If the federal loans are not in default it is handled by a loan servicer. When it is accelerated the entire unpaid balance becomes due. When it is part of the defaulted federal student loans it is sent to a collection agency. A financial hardship may allow you a deferment or a forbearance. Income-driven repayment plans can help manage monthly payments and avoid additional debt by adjusting payments based on your income. But a low income means your payments are small or zero. A year of little or zero payments would eliminate another year from the 20 years you have to pay. You may want to make the small payment.

Debt Collection and Wage Garnishment

Debt collectors can be relentless in their pursuit of unpaid debt, including private student loans. If you default on a private student loan, the lender or debt collector may contact you frequently through phone calls, texts, or mail, seeking payment. In some cases, they may even reach out to your friends or family to locate your contact information. If you fail to pay, the lender or debt collector might take further action, such as filing a lawsuit and subsequent wage garnishment or judgment lien against your home. A wage garnishment allows them to deduct a portion of your wages directly to collect the debt. This is generally limited to 25%. Understanding your rights and the tactics debt collectors may use is important in managing your private student loan debt.

Kentucky Statute of Limitations for Student Loans

Stop paying and the collection calls begin. They will offer repayment plans and rehabilitation. The will be happy to refinance the loan so the clock for the statute of limitations restarts. The interest rates often go up and recent payment will often just trigger more collection methods.

Collectors will record calls so the information you give to them can be used in court against you later. It is rare when calling a collector will benefit you. Never admit liability during the phone call. It can be used to prove you owe the debt in a student loan lawsuit later.

If the third-party collector does not immediately leave you alone, keep copies, tapes, and any records of their continuing attempts, and sue them under the Fair Debt Collection Practices Act. The Fair Debt Collections Practices act requires:

The debt to be a consumer debt
The debt must be in default.
The collector is collecting for the debt of another party.
The collector must treat you truthfully and with respect.

Paying the debt after it has been charged off and enters collections generally does not improve your FICO score. The only exception to this is when a student loan is rehabilitated under the Department of Education DOE rehabilitation program.

Private student loan statute of limitation issues

The statute of limitation always applies to private student loans. They are treated no differently than credit card debt with the exception that to bankrupt them you must prove an undue hardship. With private student loans, the loan is in default as soon as it is overdue.

For government student loans it is not in default unless it is over 270 days overdue. Until then it is normally only being serviced. After 270 days it is in the hands of a collector and in collections. There is no statute of limitations for most government student loans. Both federal student loans and private student loans are dischargeable in bankruptcy if they were not

qualified loans or
the instruction was not qualified or
the school was not qualified.

Other exceptions that may allow you to discharge the debt include that the loan would be an undue hardship, death, disability, the loan was fraudulent, or in some cases, certain military loans are specifically dischargeable.

There is no statute of limitations on collection actions for defaulted federal student loans, and defaulting can severely impact a borrower’s financial situation, including wage garnishment and difficulties in achieving loan forgiveness.

Normally federal student loans are never dischargeable. Because federal student loans are supposed to be based on disposable income it should never be a hardship but maybe. Private student loan debt however is not based on your disposable income and is far more often found to be a hardship.

Remember

The statute of limitations only applies to private student loans. The statute of limitations for each state applies to the residents of that state. Whether or not making any payment resets the statute of limitations is a matter of law for the state you are in. For some people moving to another state to defeat a private debt is an option. If you have a student loan read the main pages on our website to understand how the time limits apply to private student loans to make some of them uncollectible after a Chapter 13 bankruptcy.