Old debts can still be a pain. It can still haunt you for as long as it remains unpaid. It is either you pay it off, settle it or suffer the consequence of having debt collectors call on you to pay what you owe.
This is where the Statute of Limitations on debts come in. This is like an expiration date for your credit accounts. The time varies per state but it usually means that if your debt reaches beyond this time frame, no debt collector can win in a legal court against you. That is because you can use this as justification for not paying it. Even the original creditor whom you owe this debt to cannot win in court as long as your old debts have already gone past the statute of limitations.
This law does not remove your responsibility to pay back the debt. It is also known as a “time-barred” debt. Although you can use it as justification for leaving it unpaid, it will always remain to be your debt. You can still pay it off if you wish but most people will not do so.
If you have any old debts, you may want to understand how to use the statute of limitations to your advantage.
What does the statute of limitations say about old credit accounts
One of the most important protections that you can get from the statute of limitations is being abused by a debt collector. Although the Fair Debt Collection Practices Act (FDCPA) prohibit abusive debt collection for all types of credit, some states have made it illegal to collect old debts that are past the statute of limitations.
Here are some of the important facts about this that you should know.
There are two debt expiration dates.
When it comes to old credit accounts, it is important for you to define two important expiration dates.
- Credit Reporting Time Limit. This is the time when your debt is removed from your credit report by the major credit bureaus. The general rule is that after 7 years, all of the old credit in your history will be removed. This excludes debts that are discharged by bankruptcy because that usually takes 10 years before it can be removed from your credit report. The longest debts that will be removed from your report are tax liens – which can stay there for up to 15 years.
- Statute of Limitations. The other expiration, as we have been defining, is the one that will discourage debt collector from suing you in court for old debts. This is separate from the credit reporting time limit. Even if your debt is still in your credit report, as long as it is past the statute of limitations, both the original creditor or debt collector cannot win in court against you.
The statute of limitations vary per state.
First of all, you need to know the specific time frame in the state where you owe that debt from. Even if you moved, the time frame that you need to follow is the state where you borrowed the money from. For instance, you acquired the debt in Texas where both written and oral debt contracts expire in 4 years. Even if you moved to Louisiana (where the time frame is 10 years) your old debts will still follow the expiration of 4 years. You can view the statute of limitations per state online. There are website like NOLO.com that provides a complete list.
When does the time frame begin.
One of the most confusing parts about the statute of limitations is when will you know if your debt is already expired. This starts on the last date of activity that you have made on your credit account – not the due date. Do not confuse it with the date when your debt officially goes to default. If your last payment was March 2010, your debt usually goes to default after 90 days – which is on June 2010. If you live in Texas, your debt will go past the statute of limitations by March 2014 and not June 2014.
It is possible to restart the statute of limitations.
This is what debt collectors would want to happen. You have to be careful about what you say when you are talking to them about old debts. If you know that your credit is past this time frame, you should not feel intimidated by the threats that they will make. If you make a payment, promise to pay the debt, go into an agreement to pay it back or reuse the credit account, your statute of limitation will restart. When that happens, the debt collector now has a fighting chance when they sue you in court for that debt.
Not all debts are covered by this law.
Be careful about using this as justification that you do not have to pay back a debt. There are certain credit types that are not covered by this. These include child support, income taxes and federal student loans. When you are sued in court for these, the statute of limitations cannot protect you.
3 things the law about old credits will not do
It is important to note that while the statute of limitations will release you from the legal obligation to pay back unpaid old debts, there are certain things that it cannot do. Here are three important aspects of your debt that it cannot help you with.
- It cannot stop the debt collector from suing you in court. You can use it to keep them from winning but if the collection agency decides to file a case against you, this is not illegal for them to do. It will bring you a lot of hassle of course, and that is probably what they want to happen. Their intention is still to intimidate so make sure you know the law enough to keep yourself from making any rash actions to restart the statute of limitations.
- It will not erase the debt. Even if you are legally obligated to pay it back, you still have the moral obligation to do so. It will forever be your debt and it is up to you and your conscience to live with the fact that you left the debt unpaid.
- It will not keep the debt from being included in your credit report. As long as it is not beyond the 7, 10 or 15 year mark, this credit account will remain in your credit report. It will continue to bring your credit score down – although the longer it stays there, the less impact it will have. But it will still be a stain on your records.
Be careful about zombie debts
The knowledge of the statute of limitations on old debts will help protect you from the burden of zombie debts. You have to know that there are certain practices wherein debt collectors will purchase unpaid credits from creditors and lenders. According to an article published on BloombergView.com, there are debt collection agencies who buy these debts for pennies on the dollar. Then, they call up the list of debtors, hoping that they know nothing about the statute of limitations. But even if these debtors know about it, these collectors will go through abusive methods to intimidate, threaten and harass consumers so they end up paying off the debt anyway. At the very least, they will try to trick you into restarting the statute of limitations.
Well there are certain ways to deal with zombie debt collectors and here are some tips that we have for you.
- Always ask the collector to send you a written notice about the debt.
- Ask them to validate the debt and send you a document proving that you owe it.
- Make sure you are already past the statute of limitations before you decide to do anything.
When you have confirmed it is an old debt, there are two things you can do.
First option is to send them a letter asking the collector not to call you again. The FDCPA states that they should honor this if you requested it. However, that will not stop them from selling your old debts to another collection agency so the process will start again.
The second option, if you want to avoid the consequence of the first, is to check your finances if you can try to settle the debt. These companies bought your debt for pennies on the dollar so they should not mind you paying lower than what you really owe. They will still make profit from it. Remember that getting into a settlement agreement will restart the statute of limitations but if you get a good deal, it can stop future collectors from ever calling you again.