“Stale debt is not collectible,” advises Atlanta bankruptcy attorney Jonathan Ginsburg. “Every State has a statute of limitations that make debt of a certain age not collectible. Debt collectors are not currently obligated to advise you that they cannot sue you or legally ding your credit report if you refuse to pay stale debt.”
In most states, the statute of limitations runs four to six years from the date you last made a payment. And that’s the catch. “In some states, a voluntary payment on a stale debt can revive the debt and make it legally collectible,” Ginsberg warns. But don’t be surprised if you hear about a very old debt. “Stale (or zombie) debt is big business,” he adds.
“Seniors are constantly targeted for old debts,” believes Alex Viecco of the debt negotiation firm New Era Debt Solutions. Viecco says they’re seeing a trend where debts that were the result of identity theft are, “coming back around for consumers. They certainly do not remember it and suddenly (collectors) act as if it was theirs.” He says his firm also hears from clients who complain about old medical debts that should have been paid by the insurance company but weren’t and resurface years later.
“Never admit to any debt without first getting more details,” recommends Viecco. At a minimum, you want to establish that the debt is legitimate, you owe it, the collector on the other end of the phone isn’t a scammer, and whether the statute of limitations has expired.
At the same time, don’t assume that just because a debt is older it can’t be collected, or that it can’t affect your credit reports. ”There are a handful of states that do require the collector to tell the consumer that they cannot be sued,” says Mark Schiffman, director public affairs for ACA International. “While it is true that every state has a statute of limitations, which varies by state and by debt type, and that a collector may not sue or threaten to sue a consumer, the collector may still seek to collect the debt from the consumer so long as it is within the guidelines of the Fair Debt Collection Practices Act.” He also notes that under the Fair Credit Reporting Act, collection accounts may be reported for seven years.
5. Debt collectors are under pressure to collect, just like you are to pay.
Collectors “work on sliding scale commissions and the quicker they get someone’s money, the higher the commission,” says Philadelphia debt collector abuse lawyer Michael Forbes. “If they don’t get your money within a fixed period of time, your account will be sent back to the creditor.”
So while collectors may pressure you to pay right away, staving them off a bit might work in your favor if you can’t afford to pay the full amount you owe. “Collectors will generally not share that they may take a lower settlement offer at the end of the month in order to meet a quota, or nearer the end of the assignment contract when the creditor is going to pull the account back,” says Michael Bovee with DebtConsolidationCare.com, a free online debt advice community that also offers free sample debt collection letters. He explains that most assignment collection accounts (where creditors assign debts to collection agencies rather than selling them) stay with collectors for 90 days. Any accounts that are not collected at that point may go back to creditors, usually to be placed with another collection firm.
And while collectors may insist that you pay the full balance you owe over time, they may actually prefer to get a smaller, lump-sum payment, says Phelan. Why? “They get paid commissions much faster that way!”
6. If they really want to play hardball, they will have to sue you.
If you owe unsecured debt such as credit card debt, collectors must typically sue you before they can go after your property, including money in your bank accounts, or try to garnish your wages. But threatening to take such actions before they have sued you and won a judgment may be illegal. Even threatening to sue you to collect a debt may be illegal if the collector has no intention of doing so.
The FTC reports that in 2010, just over a quarter of all FDCPA complaints reported that third-party collectors falsely threatened a lawsuit or some other action that they could not or did not intend to take. In addition, 18.6% of FDCPA complaints alleged that such collectors falsely threatened arrest or seizure of property. No doubt some of these complaints involved overseas payday loan collection scammers. Still, some involved calls from collectors in the U.S. trying to collect legitimate debts.
“Debt collectors use applied psychology to persuade and threaten consumers to pay debt,” Ginsberg explains. “Often this psychology involves veiled threats of criminal action or litigation when these options are not available.”
More on Managing Debt:
- The Credit.com Debt Management Learning Center
- How to Pay Off Credit Card Debt
- 5 Tips for Consolidating Credit Card Debt
- Understanding Your Debt Collection Rights
- The Best Way to Loan Money to Friends & Family
- Top 10 Debt Collection Rights
Image: ConvenienceStoreGourmet, via Flickr