We frequently get asked by readers what the statute of limitations are for debts, and for how long old debts can affect your credit. For example, one reader recently asked this forum question:
I have a friend that had a credit card when she was starting college, and used it to pay for car problems that arose, but then went over the limit, and had late fees, and finally cancelled the card, but I guess she never paid it off. She hasn’t had the account in nine years, and recently got a letter from a collection agency trying to collect on the old debt. Is there a limit to how long a collection agency can try to collect on this debt? Will this affect her current credit if she pays off this 9-year-old debt?
There are two important parts to this question, and they often get confused:
1. How long the debt collector can collect the debt and
2. How long old debts can appear on credit reports.
[The Credit.com Forum: How long can a collections agency collect on an old debt?]
How Long Can Old Debts Be Collected?
Each state has laws, referred to as “statute of limitations,” that spell out the time period during which creditors or collectors may sue borrowers to collect debts. In most states they run between 4-6 years after the last payment was made on the debt.
A debt that is outside the statute of limitations is called a “time-barred” debt.
In some states collectors cannot try to collect at all once a debt is past the statute of limitations. In other states,, they cannot sue you but they may still try to collect the debt. There is a way to stop the calls that we’ll share in a moment.
Does that mean that once the statute of limitations has expired you won’t be sued for a debt? Not necessarily. Some debt buyers — companies that buy and try to collect very old debts — still go after borrowers and even take them to court. They know that most borrowers who are sued for old debts won’t show up in court and the judge will issue a “default judgement,” which may give them additional collection powers such as access to the money a debtor has in his or her bank account, or the ability to garnish wages to collect the judgment. To prevent this, all a borrower has to do is appear in court at the appointed time and explain that the debt is time barred. If that is correct, the lawsuit will be dismissed.
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If you are contacted by a collection agency about a very old debt:
1. Ask the debt collector to send you written notice of the debt. This is required under the federal Fair Debt Collection Practices Act, even if you don’t ask. But by keeping the initial phone conversation to a minimum, you may avoid saying or doing something that could hurt you later on. (Scammers will say they aren’t allowed to do that, or will offer to email you something. Don’t accept that answer.)
2. Once you receive written notice of the debt, you have 30 days to request validation of the debt. Mail your request to the collector with a certified letter and simply ask them to validate the debt. You don’t have to give a reason for your request. You can simply say, I dispute this debt, please validate it.
3. While you are waiting for the response from the bill collector, contact a consumer law attorney or your state attorney general’s office to confirm the statute of limitations for the debt. (Consumer law attorneys who regularly represent consumers in cases against debt collectors often provide a free consultation.)
4. If you confirm the debt is too old, you have one of three choices. You can:
a. Pay it. If you know you owe the debt and you now have the ability to pay it, you can do so. Make sure you keep written records of the amount due and your payment. Sometimes these old debts get sold to multiple collection agencies and if you get another call about this debt you want to have proof you have paid it.
b. Settle it. If you know you owe the debt and want to try to make good on it but you can’t pay the full amount (or if the debt has been inflated by fees), then you may want to negotiate to settle it for less than the full amount due. This is tricky, though, because once you start negotiating you could reset the statute of limitations. You could wind up being sued for the entire debt. If you really want to go this route, your best bet is to talk with an attorney first.
c. Send the collector a letter telling them to leave you alone. You have the right to ask a debt collector to stop contacting you. Once you do that, they are only allowed to contact you to tell you if they are taking legal action against you. If you know the debt is outside the statute of limitations, state that in your letter and tell them not to contact you again. Don’t be surprised if they sell the debt to someone else, but they shouldn’t bother you again.
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How Long Do Collections Affect My Credit?
Many of our readers confuse the statute of limitations with the amount of time that collection accounts can appear on credit reports. But they are two separate issues.
The length of time that collection accounts may remain on credit reports is seven years and 180 days from the date the consumer first falls behind on the original account. This requirement is found in the Fair Credit Reporting Act, a federal law. One of our forum moderators who goes by sanama51 describes it this way:
The CRTP (Credit Reporting Time Period) for collections is up to 7.5 years from the DoFD (Date of First Delinquency) on the OC (Original Creditor) account that led to the collection. The DoFD is the first date that someone gets behind on payments and never again gets caught up.
Even if one of these bills remains unpaid, it cannot be reported after that 7.5 years is up. The date an account was placed for collections is irrelevant here, so don’t let that confuse you.
The only scenario where an old collection account can affect your credit is if you are sued and the collector gets a judgment against you. That new judgment would have its own 7-year reporting period.
In the case of our reader’s friend, she should first find out the statute of limitations for credit card debt in her state. If it turns out the debt is not time-barred, then paying or settling it may protect her from being sued. But if it is too old, then she can choose to either pay it or send the collection agency a cease contact letter.
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Image: Martin Lopatka, via Flickr
Gerri Detweiler Gerri Detweiler is Credit.com's Director of Consumer Education. She focuses on helping people understand their credit and debt, and writes about those issues, as well as financial legislation, budgeting, debt recovery and savings strategies. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of TalkCreditRadio.com.
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Good article Geri – it seems like this is always a timely topic. Since we are rapidly approaching tax season, it’s probably worth mentioning that, if a borrower settles with the creditor (including a debt buyer or collection agency) for less than the full amount owed or if they send a cease communication letter to them and refuse to pay on a time-barred debt, they may receive a 1099-C for the amount forgiven/amount of the debt. Your readers who receive a 1099-C should definitely check out your excellent articles on the subject.
Question, I had an auto loan that was 6 yaers in lenght, 72 monthly payments. About 3 months ago I thought I had mad my last payment, but kept on getting dunning notices that I owed an amount that was about $100 short of a normal payment(Mthly payments were $499, dunning payment was for $399. When i inquired to the loan company they stated that I had missed a payment. i went on line to there web site looked at all my payments, seems I made 74 payments on a 72 payment loan. When i brought this up tp them the first response was prove it, I said check my payment history site. They said the payment due was now related to interest. When I told them I still made 2 extra payments and to apply that to the balance open and send me a refund, I shortly received a “we have to protect our interest E-mail and will take the auto if the payment is not received by a certain date. I paid the amount. Now what do I due?
Who is the lender?
Great information.
First, if an unpaid credit or any type usecured loan exists, upon receipt of collection agency letter, seek (1) validation letter in the form of “original documents”, not any documents. (2) seek validation within 30 days of the date of the collection agency letter, and (3) seek their reply within 30 days of your letter seeking validation. If the “original documentation”, does not exisits, the credit or oan company would NOT be able to file a suite (claims) in the court. One requires copies of the original documentation to file a claim. Nine out of ten times, credit company lacks the original documentation, which invalidates their claim against you.