A promissory note is a financial instrument used to document the terms of a loan agreement. Since promissory notes are legally binding, there are consequences if you default. Each state has its own statutes of limitations for debt collection that determine how long a creditor has to take legal action for nonpayment. State statutes of limitation specifically address promissory notes. Depending on where you live, the statute of limitations for promissory notes ranges from three to 15 years.
Promissory Note Basics
Although a promissory note is similar to a written contract, it contains less extensive clauses than a contract. The promissory note must identify the parties involved, the amount borrowed, the repayment terms, the end date and the interest rate. Only the borrower is required to sign the promissory note.
Statute of Limitations
In the majority of states, the statute of limitations for promissory notes is similar to written contracts. However, it can be shorter or longer for promissory notes, depending on the state. In Alaska, Arkansas, Delaware, Washington D.C., Kansas, Mississippi, New Hampshire and South Carolina, the statute of limitations is 3 years. In Illinois, Indiana, Louisiana, Rhode Island, West Virginia, Wisconsin and Wyoming, there is a 10-year statute of limitations for promissory notes. Kentucky is the only state with a 15-year statute of limitations. The statute of limitations clock begins ticking on the date of last activity, which is generally the last payment you made.
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Action After the SOL
After the statute of limitations is up, the creditor can no longer sue you for the unpaid promissory note. However, that doesn't mean it can't send you letters or call in an effort to collect. You'll still owe the debt. Certain debts associated with promissory notes aren't subject to state statutes of limitations. For example, federal student loans have no statute of limitations. Collection methods can continue until the debt is paid in full.