What Is an Open-Ended Account?

Creditors have limited time to take legal action to collect from you

The statute of limitations on debt—the time period that a debt is legally enforceable—can be categorized in one of four ways. Was the debt created by oral contract, written contract, promissory note, or is it an open-ended account?

It's important to know which type of debt you're dealing with because the specific statute of limitations can be different in each state depending on the type of debt you've incurred. You should be sure that you're using the right timeframe to consider whether a debt is past its statute of limitations. 

Open-Ended Accounts

An open-ended account is one that has a varying revolving balance. You can borrow from it over and over as long as you continue to repay the balance. Open-ended accounts have pre-approved limits that allow you to have outstanding balance at any given time. Transactions that would exceed this limit are typically declined and not processed. A credit card and a line of credit are both examples of open-ended accounts.

These accounts give you more flexibility on the amount you borrow at one time. You can use a little or a lot of the credit that's available to you, depending on what you need. You also have flexibility in how you repay what you've borrowed. The creditor will set a low minimum payment that you must make by the due date, but you always have the option to pay more than that.

How Open-Ended Accounts Become Bad Debt

Your open-ended account will remain in good standing as long as you make your payments as agreed, but your account will go into past due status if you fall behind on payments. The creditor will take action to get you to bring the account current. It will call you, send you letters, and and report your late payments to the credit bureaus.

After a certain number of missed payments and no indication that you're going to catch up, your account will go into default. The clock for the statute of limitations begins ticking when there's no longer any activity on your account. Some creditors will sue you for the unpaid debt, but they must do so before the statute of limitations runs out. in effect. You can use that deadline as a defense against any lawsuits that come against you after that point in time. 

The Statute of Limitations on Open-Ended Accounts

Open-ended accounts have the shortest statute of limitations in many states. These debts will generally become legally unenforceable before other types of debts. Use the table below to find out the statute of limitations for open-ended accounts in your location. The numbers given represent years. 

Alabama 3 Montana 5
Alaska 3 Nebraska 4
Arizona 3 Nevada 4
Arkansas 3 New Hampshire 3
California 4 New Jersey 6
Colorado 6 New Mexico 4
Connecticut 3 New York 6
Delaware 4 North Carolina 3
Florida 4 North Dakota 6
Georgia 4 Ohio 6
Hawaii 6 Oklahoma 3
Idaho 4 Oregon 6
Illinois 5 Pennsylvania 4
Indiana 6 Rhode Island 10
Iowa 5 South Carolina 3
Kansas 3 South Dakota 6
Kentucky 5 Tennessee 6
Louisiana 3 Texas 4
Maine 6 Utah 4
Maryland 3 Vermont 3
Massachusetts 6 Virginia 3
Michigan 6 Washington 3
Minnesota 6 West Virginia 5
Mississippi 3 Wisconsin 6
Missouri 5 Wyoming 8

Remember, the statute of limitations continues to run as long as there is no activity on the account. You can restart it if you make a payment, even if it's a partial payment. The same applies if you enter into a payment arrangement or even if you acknowledge the debt is yours in some cases, even if you don't make a payment. 

Consult with an attorney to verify the timing for the statute of limitations if you're faced with a lawsuit by a creditor. Find out how you can use the statute of limitations as a defense against your lawsuit.