According to the federal Fair Debt Collection Practices Act, a debt collector is an entity that regularly collects monies that is owed to others. They can represent collection agencies, credit card companies, hospitals or lawyers, to name a few. They may represent a company that bought a debt from a third party. The term does not include the original creditor who collects their own debts.
A statute of limitations sets the maximum amount of time after an event that any legal proceedings can be initiated. These limitations can vary state to state and there may be a different set on the federal level. Yet overall, there are statutes of limitation for almost any legal action, encompassing civil and even some of the most heinous criminal acts.
Bringing an uncollected debt claim to court would be a civil action. With the statute of limitations looming, a debt collector is aware that they have to proceed in the allotted time. The collector knows letting the specified time pass negates the opportunity to take legal action. That debt is now considered ‘time-barred.’ Not only can a debt collector no longer sue, but the consumer has no obligation to repay said debt. That doesn’t necessarily mean a time-barred debt is automatically eliminated.
The time period for a statute of limitations will vary state to state but they, in general, have two common denominators that affect the time range: (i) the type of contracted debt (loan or credit card, etc.) and (ii) the specific law that applies in a particular state the consumer lives in or the state specified in the credit contract. Some states may have a 10 or 15 year period for a debt collector to take a consumer to court for an owed debt. Other states may impose as little as three or six years. Though, again, these numbers can be affected by a number of factors related to the jurisdiction.
Debts fall into four overall categories. Knowing which your debt falls under puts a consumer in a better position to defend themselves against debt collectors.
Written Contracts – The payment of this debt was agreed upon by the consumer and the debt collector with a written contract that was signed by the consumer and the collector. It is one of the most binding agreements for repaying a debt.
Promisory Notes – Another type of written contract, except it may be more specific in its terms. It may include terms and conditions of repayment, including dates for payments, length of time and any fees.
Oral Agreements – Nothing is in writing. At some point, you gave the debt collector an oral agreement to pay back the debt.
Open Ended Account – This is a revolving account where the consumer can borrow and repay funds owed. Credit cards, for example, are open ended accounts.
There are no fast and hard rules in these matters. It can be tricky to gauge any one situation as the statute of limitations varies state to state. There could be different guidelines for different debts and situations. Under certain circumstances, the clock for the debt can be reset. That means the time period for the limitation starts anew. It’s highly recommended by the Federal Trade Commission that you understand your consumer rights regarding old debts.
The court system does not keep track of any individual debt’s status. It will actually be the consumer’s responsibility to prove the statute of limitations on the debt has passed. Also note the moral obligation to repay may still exist. Only the court can eliminate the debt. Otherwise, the debt collector can still make attempts to retrieve the monies owed. They simply can no longer sue for the funds. To try would be a violation of the Fair Debt Collection Practices Act.
See a state by state breakdown of the statute of limitations allotted for different types of debt. However, these numbers can change as well as the circumstances behind them. For accuracy, it would be prudent to consult with an attorney that specializes in financial matters, or your specific state’s Attorney General.
Remember, a debt isn’t eliminated because the statute has expired. You have options, though there are consequences for each. For example, deciding to pay the debt and how much may affect your credit rating. In some states, making any payment can restart the clock on the statute of limitations, meaning the debt collector has another opportunity to take you to court.
A consumer can certainly asks if the debt is time barred. The law requires that if the question is answered, the debt collector has to answer it truthfully. A reputable collector simply will not respond to the question, which would for all purposes actually be your answer.
Another good question to ask is what their records show as the date of the last payment to this debt. It helps establish when the clock on the statute of limitations started ticking and when that time ran out. If the debt collector is unwilling to provide the information, wait. They will eventually send a written notice that you’re aware of the debt and they expect payment. Within 30 days of that notice’s receipt, write the debt collector a letter explaining that you’re disputing the debt and wish to see verification. The more information the letter provides the better. The law states at this point a debt collector can no longer ask you about the debt until they’ve given verification of its status. Once they do, keep copies of that and your original letter.
After that verification, the collector can continue to contact you until you ask them to stop in writing. Your non-payment will, of course, affect your credit rating negatively, if it hasn’t already. It will be harder, or more expensive, to get insurance, any type of credit, a loan, car, mortgage or other financial services.
A lot of debt collectors will try to negotiate a private settlement. To resolve the debt once and for all, they’ll offer to accept a portion of the overall funds owed, in installments or a lump sum. If you choose to work with that, get the agreement in writing. Otherwise, there could be a claim that this was merely a partial payment with the remainder of the debt to be paid later. There needs to be a written document signed by both parties that clearly delineates the payment(s) is being made with the full understanding the entire debt will be settled and you are released from any further obligation on that debt.
If civil proceedings are taken on a time barred debt, respond. Consult with an attorney. There will need to be proof, such as the verification letter sent by the debt collector. If the court determines the debt is time barred, the judge will dismiss the lawsuit.
Do not ignore any lawsuits filed by debt collectors. That will likely result in a judgment against you as the court will only have one side of the story to make the decision. That decision unfortunately can lead to garnishments of wages, freezes on bank accounts and the government turning over tax refunds to debt collectors.
It is against the law for a debt collector to threaten to sue if they know the debt is time barred. If you believe this has happened, a complaint can be filed with the FTC and the state Attorney General. After speaking with an attorney, there’s even the possibility of filing your own private action lawsuit against the debt collector for violating the Fair Debt Collection Practices Act. A good place to look for an attorney that’s familiar with these matters is the National Association of Consumer Advocates.
