Managing Debt

What Happens If I Never Pay an Old Debt?

Comments 17 Comments

Maybe you can’t pay. Or maybe you won’t pay. Either way you have an old debt hanging out there. What if you just decide to let it go, and do nothing about it? That’s what Credit.com reader Dave, who says he can’t afford to pay off the old debts he owes, asks:

My credit card debt is roughly $12,000. I consulted a bankruptcy attorney. He said filing bankruptcy should not be my first option since the amount is quite low. And the collectors have stopped calling. In California, is there a 3 or 4 years of limit by which the collection agency can file lawsuit? After that time, they can’t sue? Then what happens? Can they still collect but not sue? Debt still stays on credit files. If they can’t sue me since it’s about 4 years since [it] went into collection and the attorney said filing may not be good idea for such small amount, then what?

Dave’s question is hardly unusual. Plenty of people wonder what will happen if they simply do nothing about an old debt.

“There is no law saying that they cannot try to collect after the statute of limitations has expired,” says Southern California consumer law attorney Robert Brennan. At least not in California, where he practices, and in most states it’s the same – though if you’re considering this move, you’ll want to consult an attorney who knows your state’s rules. “In California, on written contracts the statute is four years from the date of breach which, in most cases, will probably be the same as date of first delinquency.”

He goes on to explain that “under the Fair Debt Collection Practices Act, debt collectors may not make false representations in connection with collecting debts, and may not take or threaten to take legal action that cannot be taken.  So, if a debt collector threatens to sue the consumer past the statute of limitations, this may well be a FDCPA violation, and I would argue that it is. If a debt collector tells a consumer that it can sue the consumer five years past the date of first delinquency, this is a false representation made in connection with debt collecting, and is also actionable under FDCPA.”

In other words, if a debt collector threatens to take you to court after the statute of limitations has expired, you can actually sue them, in which case, they may end up owing you money.

Does any of this mean Dave won’t hear anything more about these debts? Probably not. “If a collector makes routine debt collection phone calls and does not otherwise violate the  FDCPA or mislead the consumer, the debt collector may continue to attempt to collect the debt,” says Brennan. Nevertheless, consumers always have the right to tell a debt collector not to contact them, and if the debt collector continues to call, they again may be in violation of the FDCPA.

The statute of limitations varies from state to state, and may be different for various types of consumer debts. In many states, they often range from four to six years, calculated from the last payment on the debt.

Collections & Your Credit

As far as Dave’s credit reports are concerned, these debts can’t be reported forever. Collection accounts may be reported for seven years plus 180 days from the original date of delinquency – the date he first fell behind with the original creditor. So if he missed a payment to his credit card company on Jan. 1, 2000, and it was later sent to collections, Jan. 1, 2000, is the original date of delinquency.

After that 7 1/2-year time period elapses all collection accounts related to that particular debt can no longer be reported, regardless of whether they are paid or not. There is the risk, however, that one of the current collectors sells the account to another collection agency and that creates a new collection account.

Starting Over

In addition to wondering about his old debt, Dave wonders what to do about his credit going forward:

Would you suggest I apply of secure card (can I?) even though I’ve debts in collection? And would a NEW secure card improve my FICO even though my old debts are showing up in my files?

A secured card, which requires the cardholder to place a security deposit with the issuer, is often an excellent option for rebuilding credit, and the applicant generally need not have good credit to get one of these cards since the line of credit is fully backed up by the deposit, at least initially.

When it comes to rebuilding credit, it’s usually best to start as soon as possible. It takes time to build positive credit references. One of the factors used to calculate credit scores is the age of accounts.

At the same time, however, Dave should also be thinking about ways to shore up his finances so he’ll have adequate emergency savings in case he runs into difficult times in the future. He can review his credit reports for free once a year and monitor his credit score monthly for free at sites like Credit.com, where he will also get an action plan for improving his credit over time. As these unpaid accounts become older and his new account is paid on time, he should see his credit scores continue to get stronger.

More on Managing Debt:

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Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • WSAY

    What is all this”may” stuff? If the consumer advises, in writing, a creditor, or debt collector, or attorney trying to collect the debt, that he or she wishes the person to stop contacting them, under the law, they’re required to stop contacting them. PERIOD. If they do contact you after that, They absolutely violated the FDCPA. And you should sue them. Your attorney fees and costs will be paid by the debt collector. You will not have to pay them at all.

    As for the credit report, while it is true that it can be reported on your credit for seven years plus 31 days, (not 7 1/2 years as reported here) once you sue the debt collector under the FDCPA you can usually negotiate it away from your credit report.

    • http://www.Credit.com/ Gerri Detweiler

      If you ask the debt collector to stop contacting you they are required to stop. If they don’t they have broken the law.

      The reason the word “may” is in there is because they are allowed to contact you about legal action they are taking to collect the debt. We didn’t get into that in detail in this article, though we have written many other articles about collection that include other aspects of the issue.

      As for the time period that collection accounts may be reported the FCRA says:

      (c) Running of reporting period.

      (1) In general. The 7-year period referred to in paragraphs (4) and (6)2 of subsection
      (a) shall begin, with respect to any delinquent account that is placed for collection (internally or by referral to a third party, whichever is earlier), charged to profit and loss, or subjected to any similar action, upon the expiration of the 180-day period beginning on the date of the commencement of the delinquency which immediately preceded the collection activity, charge to profit and loss, or similar action.

  • http://www.Credit.com/ Gerri Detweiler

    Good points – thanks for weighing in!

  • Chris M.

    If you send a C&D letter to the collection agency, they are indeed allowed one final communication with you. Said communication has to either be (paraphrasing) “We are ceasing all further collection efforts” or “We’ll see you in court.” The latter only applies if the debt is still within the SOL of course.

    There’s also some case law about this type of letter and having the words “this is an attempt to collect a debt” printed on the front of the page being a violation, but it’s complicated and easily defeated. (Example: “We are ceasing all collection efforts”, and the “this is an attempt to collect a debt” being pre-printed at the bottom of the page. They’ll likely win from bona fide error.)

    As for your second paragraph, I can only assume you mean FCRA instead of FDCPA. The FDCPA does not apply to creditors, period. It only applies to 3rd party debt collectors (including “attorneys” who regularly attempt to collect debts for others). Disputing with the CRA and/or creditor has nothing to do with the FDCPA. You can technically make an FCRA case out of it (section 623) but you have to take steps in a very specific order or the consumer has no private right of action under that part of the act.

  • papasan173

    What is the statute of limitations on a debt that was gotten in CA, once the debtor moves to AZ? The SOL in CA is 4 years, and the SOL in AZ is 6 years.

    • http://www.Credit.com/ Gerri Detweiler

      It depends on where the creditor or collector files suit. Under the Fair Debt Collection Practices Act the collector may file suit in the state where you signed the contract or in the area where the consumer currently resides. In addition, judgments ,may be transferred to your current jurisdiction. That doesn’t mean they will take this route, only that it’s a possibility. If you’re worried about a lawsuit I suggest you read this article: Seven Ways To Defend a Debt Collection Lawsuit

  • http://consumerrecoverynetwork.com/ask-a-question/ Michael Bovee

    The best explanation as to how what happened was possible, or if it what happened should not have, would likely come from an experienced debt collection defense attorney in your state. You can find one through http://www.naca.net

  • Magnum454

    Once 4 plus years has gone by these debt collectors are trying to collect a zombie debt and if you are foolish enough to listen to them then you have been scammed by that collector, its that simple. And this stuff about selling the debt is how it becomes a zombie debt in the first place, its dead and it is not going to come back to life…

    • http://www.Credit.com/ Gerri Detweiler

      The statute of limitations varies by state. It can be much longer than four years on some states.

  • http://www.Credit.com/ Gerri Detweiler

    What type of bills were they? How did they change on your credit reports? How old were they? Generally paying off debt won’t hurt your scores though sometimes strange things do happen: The Bad Stuff Is Off My Credit Reports – So Why Didn’t My Scores Go Up?

  • http://www.Credit.com/ Gerri Detweiler

    Yes that’s correct.Thanks for pointing that out.

  • http://www.Credit.com/ Gerri Detweiler

    The first issue is identifying the collection agency. If the credit report does not list full contact information, contact the credit reporting agency, By law they must supply that information.

    Then as far as the dates go, it sounds like they may be reporting it longer than it legally should be reported. You can file a complaint with the Consumer Financial Protection Bureau or contact a consumer law attorney.

    Let us know how this goes and if you run into further problems!

  • http://www.Credit.com/ Gerri Detweiler

    The first issue is identifying the collection agency. If the credit report does not list full contact information, contact the credit reporting agency, By law they must supply that information.

    Then as far as the dates go, it sounds like they may be reporting it longer than it legally should be reported. You can file a complaint with the Consumer Financial Protection Bureau or contact a consumer law attorney.

    Let us know how this goes and if you run into further problems!

  • http://www.Credit.com/ Gerri Detweiler

    I am sorry that wasn’t clear. Any collection agency that reports the debt is is supposed to report the original date of delinquency – the date the consumer first fell behind with the original creditor. Collection accounts may be reported for up to 7 years plus 180 days from that date. Provided it is reported correctly, a debt that is older than that time period should not appear on the consumer’s credit reports. In other words, no collection accounts may be reported after that time period regardless of when the collection agency picked up the debt. Make sense?

    • http://www.Credit.com/ Gerri Detweiler

      The original date of delinquency is the date the consumer defaulted leading up to the account being placed for collection. So if the phone company was correct and your husband didn’t pay a bill in, let’s say October 2007, then that’s when the time period starts. It runs for seven years plus 180 days from that date (essentially 7.5 years).

      The statute of limitations is a different time period, and my understanding is that in Michigan it is six years.

      If you want to find an attorney who handles credit damage/ debt collection cases I suggest you visit the website of the National Association of Consumer Advocates. Another option would be to file a complaint with the Consumer Financial Protection Agency.

      I’d like to hear what happens!

  • http://www.Credit.com/ Gerri Detweiler

    So sorry to hear this. You should at least talk with a bankruptcy attorney. Sounds like you really need legal advice.

  • http://www.Credit.com/ Gerri Detweiler

    In this situation, I would really recommend you talk with a consumer law attorney. Since this is a business debt and not a consumer debt, the normal consumer protection laws do not all apply here. However, it sounds questionable as to whether you should have been held responsible in the first place (if the employer gave you the card and you never signed anything), and secondly it sounds as though the statute of limitations may have expired. But you’ll want to check with an attorney who understands this area of law to make sure. Visit the National Association of Consumer Advocates website if you need a referral.

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