A statute of limitations promissory note refers to the amount of time a lender has to take legal action against a debtor who is not paying back the amount they owe or has breached the contract in some way.

What Is a Promissory Note?

A promissory note is a legal agreement in the form of a written contract that states that a borrower, also called a debtor or promissor, agrees to repay the lender, or promisee, the amount that was lent to them and any accumulated interest. The original amount of money loaned is called the principal amount. Most promissory notes detail a schedule for repayment and include a provision that allows the promisee to demand full repayment in the event that a promissor misses a scheduled payment.

If there is a breach of contract, the promissor will be notified of the breach in writing and the repercussions of that breach. Being late on a payment is a way to breach contract, even though it may not seem like a big deal.

There are a few common types of promissory notes, including:

  • Student loans
  • Mortgages

What Is a Statute of Limitations?

Statute of limitations is a specified amount of time that an individual has to pursue legal action regarding an event. In the case of debts and repayment, the statute of limitations refers to how long the lender has to take the debtor to court to be legally forced to repay the debt. A statute of limitation isn't tracked by the court system, rather it's the responsibility of the lender to know when the debt is past the statute of limitation so they can pursue a suit.

The statute of limitations varies depending on the state, but an average length is around five years. Some states have limitations as long as 15 years.

Agreement Types

There are a few different types of lending agreements, but the three most common types are oral agreements, written contracts, and open-ended accounts. When a debt is based on an oral agreement, nothing is in writing. This means that the borrower only agreed to pay the lender back through a verbal agreement. These agreement types can be difficult to uphold in court. It's always best to get lending agreements down in writing.

Anytime an agreement is written down on a piece of paper (or even a restaurant napkin) and signed by both parties, it is considered a written agreement. Written contracts must include the following:

  • Loan amount
  • Monthly payment amount
  • Date that principal amount was given to borrower
  • Signature of borrower
  • Signature of lender

These are also called the terms and conditions of the contract. Medical debts are common written lending contracts.

An open-ended account is a lending agreement that allows the borrower to repay the borrowed amount and then borrow again. This is essentially what any credit card account is. Lines of credit and in-store credit are other common forms of open-ended accounts.

Statute of Limitations With a Promissory Note

A promissory note will need to be analyzed in order to figure out the statute of limitations on the note. If the promissory note can be viewed as negotiable or if the status of the note is in doubt, the lending party would need to file a lawsuit within four years from when the lender discovers that the note isn't being paid on time or at all. If the note is non-negotiable, the statute of limitations applies, and that is determined by the state.

What Is a Time-Barred Debt?

Any time a debt has passed the time of the statute of limitation, it is called a time-barred debt. Even if a borrower's debt has become a time-barred debt, they still owe the money. This means that a lender cannot get the court to judge against the borrower if the borrower can prove that the debt is passed its statute of limitation.

There are a few easy ways to prove the age of a debt. Personal checks used for payment and any records of communication between the borrower and lender are great ways to show how old a debt is. If a plaintiff attempts to take legal action against a time-barred debt, they risk the court dismissing their case.

If you need help with a statute of limitations promissory note, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.