Legal Representation For Consumers

You don’t have to pay old debts.

When is an old debt too old for a creditor or collector to sue you?

If you are reading this article you are likely a savvy debtor who searched the Internet to attempt to ascertain your rights against debt collectors who are calling or sending you letters attempting to collect on an old debt.

First question, what is an old debt? It depends on what the meaning of the word old is? (OK, you can snicker; I just had to get that Clintonian allusion in there.) We are obviously talking here about the statute of limitations.

The Statute Of Limitations

The general proposition is simple: if a debt is beyond the statute of limitations, collectors, debt buyers (sometimes also deservedly known as scum-sucking bottom-feeders) or creditors should not be able to sue you to collect them. They have a limited number of years—according to the applicable statute of limitations—beyond which they cannot sue you to collect the debt. After that time, your unpaid debts are considered “time-barred.” So, you cannot be sued for not paying a debt that’s time-barred. Let’s be technically accurate: you can be sued, but you will have an ironclad defense (a defense which you can give up if you don’t raise when sued).

That begs the question (begs the question is a legal buzz phrase we lawyers like to use to sound cool): how many years is the statute of limitations that applies to my debt? The answer is . . . it depends. Come on, if legal matters were simple I would not have a job.

Typically, the statute of limitations that applies is prescribed by your state law. For example, in Florida, if your debt is more than 5 years old (or sometimes 4), you are in good shape. Life is not that simple though.

Let’s look at credit card debts, again as an example—and a good one, given that the bulk of consumer collection activities revolve around credit cards (most of which, in turn, are “revolving” lines of credit—I just could not resist the pun).

Your credit cards are likely controlled by the laws of states other than yours. If you don’t believe me, pull out a “Cardholder Agreement” from one of your current cards (oops, I know, you probably threw it away, so go look it up online). Locate the section titled (usually in bold) something like “Applicable Law”. The text will likely say something like “This card is subject to the laws of the stat of X and Federal laws.” There may be, but in Florida, I have never seen a credit card subject to Florida law.

The good news is that the controlling law may prescribe a shorter statute of limitations than your state’s statue, perhaps only 3 years. Without looking at the credit card agreement, it is not possible to determine the length of the limitations period applicable to your credit card debt.

To make matters more complicated, the statute of limitations varies not only from state to state, but it differs for different kinds of debts. That is a subject for another time or for you to discuss with your consumer lawyer.

Plus, there may be a little trap waiting for you: under certain circumstances, the clock can be reset, and the time period can be started fresh. So be very weary when a debt collector asks you to send a token payment of “good faith”, say $5. That may be a trick to restart the limitations period. If your debt is time-barred, it’s best to let it be so.

A related question: when does the limitations period start to run? Usually, the clock starts ticking when you fail to make a payment. Interestingly, some collection lawyers claim that the clock starts to tick when the creditor says so. I have seen them argue this in court with a straight face. They will say something like: “Well, the bank did not consider the debtor to be in default until such and such a date”, which of course just happens to be a date within the limitations period.

Collectors Can Try To Collect On Your Time-Barred Debt

If your debt is fairly old, chances are you will be collected on by a debt buyer or a collection agency (I refer to both here simply as a “collector”). The original creditor (for example, the bank that issued your credit card) will likely be long gone from the picture.

Other than not having the money, nothing prevents you from paying old debts. Some folk, strictly out of a moral sense of duty, want and will pay old debts when their finances improve. Collectors know this. Collectors also know that many people don’t know they have the right to refuse to pay old debts.

Contrary to popular belief, collectors are allowed to contact you about time-barred debts. They just can’t violate the collection laws when they do. S0, what should you do if a debt collector calls or sends you letters trying to collect a time-barred debt?

The letters? You can ignore them (but see the discussion on the following section on a possible downside of not paying the debt). Better yet, take those letters to your consumer lawyer to make sure they comply with the law. Among other possible violations, for example, it is against the law for a collector to threaten to sue you on a time-barred debt. You may be entitled to some money, as much as $1,000 to $2,000 in “statutory damages”.

The calls? The collectors should tell you that the debt is time-barred and that they can’t sue you if you don’t pay. If a collector doesn’t tell you that a particular debt is time-barred, but you think that it may be, ask the collector if the debt is beyond the statute of limitations.

If the collector answers your questions, the law requires that the answers be truthful. If the collector acknowledges that your debt is time-barred, then you are all set; you know you don’t have to pay. Read the next section of this article, though.

However, the collectors may decline to answer your question. If so, send the collector written notice within 30 days of receiving a call or letter about the debt, telling the collector that you are disputing the debt and that you are refuse to pay the debt. I suggest you send the letter certified, return receipt requested. Keep a copy of the letter!

The collector should then either send you documentation verifying the debt or stop collecting the debt.

What’s The Down Side Of Not Paying A Time-Barred Debt?

The decision to pay a time-barred debt is, obviously, strictly yours. Although the collector may not sue you to collect the debt, you still owe it. The collector can continue to contact you to try to collect. You can stop further contacts by sending the collector a letter demanding that communication stop. Don’t forget, send it return receipt requested and keep a copy of your letter.

Not paying a debt may make it harder or more expensive to get credit, insurance, or other services because not paying may lower your credit rating. Even though a debt may be beyond the statute of limitations, collectors can still report it to credit bureaus for roughly 7 years. So, there may be some negative consequences to your not paying an old debt.

By the way, if you decide to pay an old debt, negotiate its deletion from the credit bureaus. I have some suggestion in another blog post.

I am not qualified to comment on the effect on your credit score of your deciding to pay or not pay a debt. You should consult a finance professional. For example, if you anticipate buying or refinancing your home, consult with a mortgage broker to determine whether you should or should not pay old debts.

What To Do If You Get Sued On A Time-Barred Debt?

I know the answer to that question: call a friendly consumer lawyer! Hey, did you really expect me to suggest you call a cardiologist?