How Long Can You Be Liable for a Debt?

Debt, like many obligations, doesn't go away if you ignore it. Depending on your initial contract, debt can stay with you for a long time if you don't pay it off. Even if you break the deal and stop making payments, you still have to face the debt, just in the form of collections, judgments and garnishments.


The length you carry your debt depends on the type of debt and your contract. Debt is broken into two categories, secured and unsecured. Secured debt is backed by an asset which the creditor takes possession of if you don't make your payments. Creditors are more comfortable letting secured debt go for longer terms than the riskier, unsecured variety. Either way, you sign a note or contract when you take out the debt. The contract specifies how long you have to repay the obligation.


Your debt liability will be longer if it is not amortizing. An amortizing debt consists of monthly payments of principal and interest. Principal reduces the balance while interest is the finance charge assessed by the lender for carrying the debt. If you make the payment each month, the debt is eliminated by the time your reach the end of the term. However, if you have an interest-only loan or a minimal principal payment, your debt is not eliminated until you choose to pay the principal. If you have an interest-only debt fully extended for too long, the bank will move it to amortization to get rid of it. The term depends on your repayment ability but can be a year, three years, five years or even 20 or more years.

Credit Reports

Debt can stick with you, even after it has been paid off. While debt is active, your creditors report the obligation to the credit bureaus. This information goes on your personal credit report. As long as the debt exists, it appears on your credit report. If you are delinquent, the debt stays on your report, but it is reported as late, which negatively affects your credit score. Collections, judgments and bankruptcy remain on your report, even after the matter is resolved. Most adverse items stay on your report for seven years, while a Chapter 7 bankruptcy stays for 10 years.

Reducing Debt Quicker

Just because a contract dictates a long term doesn't mean you can't exercise your options to pay early. The one stumbling block is a prepayment penalty, in which the bank charges a percentage of the principal balance if you pay the loan before your scheduled payoff date. This is common on mortgages and commercial loans. If you don't have a prepayment penalty and you have the means, pay extra wherever you can to reduce the length of time you are liable for the debt.


About the Author

Carl Carabelli has been writing in various capacities for more than 15 years. He has utilized his creative writing skills to enhance his other ventures such as financial analysis, copywriting and contributing various articles and opinion pieces. Carabelli earned a bachelor's degree in communications from Seton Hall and has worked in banking, notably commercial lending, since 2001.