Updated: 8/8/2011 6:01 PM ET|
A statute of limitations on debt?
There are 2 main time limits: How long debt stays in your credit reports and how long you can be sued for it. If you're struggling, here's what you need to know.
Credit scores have plunged. With hiring nearly at a standstill, unemployment benefits are routinely running out. Foreclosures remain high. In the last two years, untold Americans have, for the first time in their lives, faced bills they can't pay.
If you're among them, you need to keep in mind that little in life, including debt, is truly permanent. Knowing something about the legal limitations on collecting and reporting debt can help you through your crisis and allow you to get back on your feet.
There are two major types of limitations on debt that you need to know -- and that many people confuse.
The first has to do with how long debt problems can show up in your credit reports. Federal law typically requires credit bureaus to drop negative information after seven years. The clock usually starts ticking 180 days after the account first goes delinquent (in other words, when you miss your first payment). There are exceptions: Bankruptcies can remain on your credit reports for up to 10 years, and some debts, such as unpaid tax liens, can stay on your reports indefinitely.
The other curb on debt collection is the statute of limitations, which gives creditors a certain time period -- in most states, three to six years -- in which to sue you over a debt.
In either case, you'll still owe the money, unless the debt has been forgiven or discharged in bankruptcy court. Lenders can try to collect it forever -- and probably will -- but they can't sue once the statute of limitations period has passed.
How long? It depends
Statutes of limitations vary widely by state and by the type of debt. States often have different rules for oral and written contracts, as well as for so-called closed-end contracts, such as installment loans, and open-ended contracts, which typically (but not always) include credit card accounts.
California, for example, has fairly short statutes of limitations on most debts: two years for oral contracts and four years for written contracts, promissory notes and credit card debts. Kentucky, by contrast, says creditors can sue over written contracts for 15 years after the last payment was made and for five years on most other debts, including credit cards.
You can start your research at websites such as the Credit Infocenter, which has a chart that includes links to relevant state laws.
Some other key points:
- The devil's in the details. Not only do states have different statutes of limitations for different debts, but two states may treat the same debts differently. A credit card debt might be considered an open-ended account in one state and a written contract in another. The only way to know for sure is to check your state laws or consult an attorney.
- You can inadvertently restart the clock. Generally, the statute of limitations starts ticking from the "date of last activity" on the accounts, said Los Angeles bankruptcy attorney Scott Bovitz. (If the account is still listed in your credit reports, the date of last activity should be noted there.) On a credit card debt, that could be the last payment you made or the last purchase you charged. But in some states, making a payment on an old debt, agreeing to an extended repayment plan or even acknowledging that the debt is yours can extend the statute of limitations or restart the clock.
- A creditor may still sue you after the statute of limitations has run out. Suing or threatening to sue you after the statute of limitations has run out violates the Fair Debt Collection Practices Act, but that doesn't mean it doesn't happen. To prevent the creditor from winning a judgment against you, you'll need to show up in court and point out that the statute has expired.
- The creditor may try to pick a better venue. If you sign a credit contract and move to a state with different limits, the creditor may try to sue you in the state that has the longer statute. If that's not the state in which you now live, you should protest, because generally the state where you reside is the one whose statutes should apply
- Debts can still exist even if the creditor can't sue. Some people erroneously believe that debts are erased after the statute of limitations has run out. Although the creditor's ability to sue you has been curtailed, it can still try other methods to persuade you to pay, including calls and letters. The debt can also be sold to another collector that can renew efforts to get you to pay. A legitimate debt is truly gone only when it's paid or erased in bankruptcy court.
- Collectors can't legally restart the seven-year clock by "re-aging" the debt (giving it a new delinquency date) orby selling it to another agency. The Federal Trade Commission shut down one large collection agency, Capital Acquisitions and Management, after charging the company repeatedly had re-aged debts in its attempts to collect.
Watch your step
If you can't pay a debt, you'll want to avoid saying anything that could restart the statute of limitations, including acknowledging the bill is yours or promising to make payments.
If you're sure the debt is too old for a lawsuit, you could send the collector a letter via certified mail, return receipt requested. The letter should state that the statute of limitations has expired and that you want all collection efforts stopped.
Still have questions? Check out the advice on Debt Collection Answers, a website of consumer advocate Gerri Detweiler, and the guide "Solve Your Money Troubles: Debt, Credit & Bankruptcy" by Robin Leonard and Margaret Reiter.
If a debt collector is particularly abusive or you get sued, you may want a lawyer's help. The National Association of Consumer Advocates can provide referrals to attorneys familiar with fair credit laws.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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For folks being dogged by collection agents on time barred debts .i.e. beyond the statute of limitations. I recommend contacting your elected representative and asking them to support HR 2361 (112th congress if you choose to google). Making it illegal to collect on debts beyond the statute of limitations. As it stands now, they can hassle you and even take you to court on debts beyond the statute of limitations and get a default judgement against you if you don't show up. Of course if you do show up they will try and get you to settle, if you go before a judge they will generally lose.
Law abiding, hard working Americans have lost almost everything in this current economy. Must they lose their dignity as well? These are people who believe in paying their own way, who have worked hard and worked within the system to fulfill not only their dreams, but their responsibilities as well.
Now the economic system has failed and these people are faced with heart breaking choices. Do I pay for food and shelter or pay credit card debt? People must meet their most basic needs of food and shelter before they can accomplish ANYTHING else.
A petition has been started on moveon.org to prevent the return of debtor’s prison in the USA. Once enough signatures are obtained, it will go to the US Congress and President Obama.
To sign the petition search / google "outlaw the return of debtors prison"
I always paid my debts. The thing is credit cards and most companies are dishonest. I bought cabinets from a company, paid in full, the cabinets were garbage. I complained to the vendor and he said install them and we will handle it later. Mistake. I ask the credit card company American Express to stop payment they did until the vendor sent a letter saying tell him to call us. A three page complaint showing modified contracts after my signature, phone records, the poor quailty of product, and so forth and the vendor says simply have Robert call us and AMEX reinstated a $4500 charge. Everytime I replied the vendor would blow it off. Uhh Robert you don't want to have the cabinets removed and the counter tops ect.. Good news Steve they aren't permanently mounted I can have the cabinet to you in an hour or two. Nothing not a friggen word. He says we'll come repair them. I said okay write down a note with exactly how you plan to repair them. His reply Uhh it doesn't work that way. Really then why make a purchase order or ask me to pay we can just go on my good word instead of theirs. Since I didn't want to pay $5000 on an attorney I just had to eat the piece of junk, and BTW that was the attorneys advise. If you can live with it just move on.
Then I bought a laptop, returned it as per the exact instructions, and the vendor refused to honor their policy. I submitted a rebate and there was no written policy and no verbal policy provided. I offered to pay the amount of the rebate which I hadn't even recieved. The guy tried to give me an open box unit which would have had no warranty because the serial numbers would not have matched up. Brand new laptop completely dead in 3 days, I had already installed my Microsoft Office on it too so I was legally unable to confirm removal and therefore technically in violation of the licensing agreement if I installed on another PC. This laptop was three days old, all I wanted to do was get another laptop brand with a store credit instead I got screwed. Wrote a letter to Amex and surprise surprise the middle finger again. Don't get me wrong I could hire an attorney and win both but I'm not about to burn $4000 to recover $1000. So I made minimum payments to keep my credit up while I hashed it out. Let me make one thing clear in both cases I followed the law to the letter, never tried to cheat anyone, did over $250000 worth of business on my Amex card and got screwed every time there was a problem because they did absolutely nothing. In fact they didn't even offer arbitration. So after more than paying for the laptop in monthly fees I decided I wasn't going to pay anymore. And I won't. My credit rating is 720 and likely would be near 760.
As far as I'm concerned I don't think the credit agencies should be allowed access to my financial records for any reason. None of them.
Just shows you how powerful these groups have. You can't stop them from monitoring your money without your consent and they can let dishonest companies make you look bad to others.
I've used information from the Credit Info Center to get a bill collector off my back. They couldn't validate the debt they said I owed, and I haven't heard from them since, and they used to call me nearly every day trying to collect on a debt I'm not even sure was mine in the first place.
If the debt is old, zombie debt they call it, 9 times out of 10 the debt was bought by another company and they have no paper trail to prove they can collect it, or even if you still owe it, so they can't collect from you. They'll just keep calling and/or writing you forever unless you get them to stop with a "cease and desist" letter that they HAVE to abide by, legally, or they can be sued for it.
Go to the CreditInfoCenter dot com website and look up debt validation and cease and desist letters for a lot better explanation than I can give.
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