Dealing with “expired” debts
If a debt is older than the statute of limitations, one speaks of a statute-barred debt. That means creditors have no legal right to sue you – although debt collection agencies can still try. They can still keep track of you with phone calls and negative credit reports.
Be careful, as debt collection has many pitfalls. Chances are that you never made this claim, that the collector is asking for the wrong amount, or that you have already paid and the collection is in error.
A debt collection agency should send you a confirmation message within five days of first contacting you. This notice should include the amount owed, the date of the last payment, who the collector is, and how to obtain information about the original creditor. If you don’t receive this notice within 10 days of first contacting the debt collection agency, ask for it.
You have several options for dealing with this and you may want to seek legal advice before acting.
If you are asked to pay a statute-barred debt that is not yours, has already been paid or is otherwise invalid, you can write to the obligee in writing that you dispute the debt.
You have 30 days from the first contact to dispute the claim before it is considered accepted by default. If you dispute the claim within this window, collection efforts must be halted until the issue is resolved.
You can still dispute the claim after the 30 day period has expired, but the debt collection agent may contact you for payment while investigating your dispute.
Be as specific as possible in your writing. Share why the attempted collection was not valid, including information about payment history or why the claim might not be yours and other relevant information. Send the letter by registered mail so that you will receive a confirmation of receipt.
If you believe a debt collection company is violating your consumer rights, you can also file a complaint with the Consumer Financial Protection Bureau or the Federal Trade Commission.
Pay it off – but beware of reviving zombie debt
Settling the debt can get you out of the debt collection mess, but make sure you can afford to pay the full amount, including any fees or penalties.
While you might think that paying at least a small amount will get the creditor off your back, it can make things a lot worse. Even a one-off payment for statute-barred debts can bring them back from the dead and reset the statute of limitations.
“When it comes to statute-barred debt, paying can be devastating,” said Colin Hector, FTC personnel attorney. “In certain states, even if you pay $ 1 or $ 5, you have one-time payment reactivated [whole] Debt and you can be sued for that debt plus fees. “
If you want to pay you have several options:
- Pay in full with a lump sum.
- Work with the creditor to set up a payment plan.
- Make a deal to pay off the debt by paying part of it.
If you pay the full amount, you will be able to get rid of the debt for good, but make sure you get the agreement in writing first. Please keep this proof in case the payment is not recorded correctly or the debt is somehow sold again.
You can also get the collector to accept a percentage of your debt in compensation, but be careful. Debt cannot be gone forever. Unless you have expressly agreed in writing that the partial payment covers the entire claim, the debt collection inctor can sell the rest of your debts to another debt collection company. And the debt is flagged as a partial payment on your credit report, which doesn’t look good.
Relief through bankruptcy
If you want to get rid of this liability for good but can’t afford to pay it off, you can file for Chapter 7 bankruptcy.
This turns the unpaid debt into collections of your plate. However, the brand from bankruptcy will effectively replace them in the next few years. However, you will likely find that your credit score improves after filing.
When debt is statute-barred, you can’t be sued for payment – but the debt won’t go away. You can ignore it, but debt collection agencies and your credit reports won’t.
In addition, collection agencies can still track the payment. If you ignore the debt long enough, you run the risk of the current collector selling the debt again.
What to do if you get sued
You can also sue creditors if a debt has expired.
The most important thing: do not ignore such a lawsuit. Ignoring would likely result in an automatic judgment against you, which could mean garnishment of your wages. Be aware of any guidance you receive, act quickly, and enforce your consumer rights.
Consider speaking to a lawyer about how to proceed and gather any documents you have that prove the debt is statute barred. If the case goes to court, you will likely provide evidence of the date of the last payment and information about the invoice. Simply stating that the debt is statute barred should be enough to dismiss the case.
Sean Pyles works for NerdWallet, a personal finance website.