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.
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. (We explain secured credit cards in greater detail here.)
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 scores for free on sites like Credit.com (updates are available every 14 days), 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.
This article was updated on March 1, 2017.