How Long is a Promissory Note Good For?
Before looking at how long is a promissory note good for, you should know that it's a financial document used to detail a loan agreement's terms and conditions.3 min read
Before looking at how long is a promissory note good for, you should know that it is a financial document used to detail a loan agreement's terms and conditions.
Promissory notes are varied. On one hand, they can be detailed and complex, covering a multitude of issues related to a contract. On the other hand, they can be straightforward, simple representations of what has been agreed to. Whatever the case, the general idea of a promissory note is that once it has been signed by everybody involved, it becomes a legally binding document that can be brought to court if one party fails to deliver what it has promised.
Because promissory notes are legally binding documents, there are serious consequences for people who default on them. States have varying statutes of limitations with regard to debt collection. These statutes will determine the period of time in which a creditor can take legal action if payment is not made. These statutes of limitation make specific reference to promissory notes.
Information Included in a Promissory Note
In many ways, a promissory note is like a written contract. However, its clauses are less extensive than those in a contract. A promissory note must include:
- The names of the people involved.
- The amount of money borrowed.
- The agreed-upon terms of repayment.
- The date the final payment was due.
- The interest rate.
- The borrower's signature.
Standard terms contained in a promissory note include:
- Identification of the parties involved.
- The amount owed.
- The amount of interest to be charged.
- The date on which payments must be made.
- The right to assign, or pass the obligation on to someone else.
- The place at which the note was entered into.
Property or other tangible assets are used to secure collateralized promissory notes. These assets can be repossessed if the borrower fails to fulfill his or her obligations in the promissory note.
When a legal action on a promissory note is enforced, the judgment allows the attachment of assets belonging to the debtor. This action usually takes two or three years to get through the courts. If the promissory note included an arbitration clause, the matter will take three to six months to resolve. A much faster and more surefire way of assuring collection against people who breach an agreement is to get them to pledge an asset to secure the note.
Typically, these pledged assets are real estate (mortgages or deeds of trust) or personal property. A creditor can seize these assets much faster than it would take to complete a court case or an arbitration proceeding. To some extent, these types of securities can also help people avoid bankruptcy, which would render the debt unable to be collected.
Depending on which state you live in, the statute of limitations with regard to promissory notes can vary from three to 15 years. Once the statute of limitations has ended, a creditor can no longer file a lawsuit related to the unpaid promissory note. However, he or she can still send letters and make phone calls to try to get the debt settled. The money does not stop being owed due to the statute of limitations being over.
If you are struggling to collect on a debt, you can use a collection agency. The costs associated with this vary. Some agencies keep a percentage of the total collected debt, while other agencies expect payment on a monthly basis. Usually, the agency will contact the debtor and request payment. This contact can be made either by phone or written notice. The agency can negotiate with the debtor in the form of a discount or a payment plan.
Duration of Statutes of Limitations
In most states, the statute of limitations with regard to promissory notes is similar to the time limits associated with written contracts. In South Caroline, New Hampshire, Mississippi, Kansas, Washington D.C., Delaware, Arkansas, and Alaska, the statute of limitations lasts three years. This goes up to 10 years in Wyoming, Wisconsin, West Virginia, Rhode Island, Louisiana, Indiana, and Illinois. The only state to have a 15-year statute of limitations is Kentucky.
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