In most cases, debt does not live forever. That is wonderful news for anyone who has made overwhelming financial management mistakes in the past. There are laws which govern how long a lender has the right to sue you when you default on an account. The length of time will vary depending upon the state in which you lived when the debt was initially established. The Fair Credit Reporting Act (FCRA) also governs how long a delinquent account is legally allowed to remain on your credit reports. The 2 statute of limitations (SOL) “clocks” are different, so let’s take a look at each.
Time Barred Debt Clock
The term “time barred debt” signifies that a creditor can no longer sue you for in an attempt to collect on an unpaid financial obligation. The statute of limitations clock which governs when a debt will become time barred varies per state. Here is a chart to help you out.
How Many Years a Collector Has to Sue: State Where You Lived When Debt Was Established:
- 15 Years: KY and OH
- 10 Years: IL, IN, IA, LA, MO, WV, WY
- 8 Years: MT
- 6 Years: AL, AK, AZ, AR, CO, CT, GA, HI, KS, ME, MA, MI, MN, NV, NJ, NM, NY, ND, OR, SD, TN, UT, VT, WA, WI
- 5 Years: FL, ID, NE, OK, RI, VA
- 4 Years: CA, PA, TX
- 3 Years: DE, MD, MS, NC, NH, SC, Washington D.C
Credit Reporting Clock
The credit reporting SOL clock is much easier to understand since it is the same for all 50 states. The FCRA states that a defaulted debt can remain on your credit reports for 7 years from the date of default. Period. If an account is sold to a collection agency, the SOL clock for credit reporting cannot legally be restarted.
Resurrecting “Dead” Debt
If you have defaulted on past debt which you could not afford to pay then it is important to beware of “zombie debt” coming back to bite you. Collection agencies have been known to try a variety of tactics to resurrect old debts which should be dead and gone due to the fact that the debt was part of a discharged bankruptcy, the debt is the result of identity theft, or the SOL clock has expired and the debt has become time barred. Here are 2 of the tactics often used by zombie debt buyers of which you should beware:
1. Default Judgments
Even if a debt has become time barred in your state, a creditor may still attempt to sue you for the debt. If you fail to show up in court and defend yourself then you will automatically lose and the creditor will be awarded a default judgment. The moral of this story is that, if a creditor is suing you for a old debt and you believe that the debt should be time barred, show up to court. Better yet, show up with an attorney.
2. Tricking Consumers into Resetting the Clock
It is surprisingly easy for consumers to accidentally restart the statute of limitations so that a creditor can regain the right to sue you and attempt to force collection. (Note: nothing can legally restart the SOL clock for credit reporting. If you have heard otherwise, you have heard a myth. Of course, you should always keep an eye on your credit reports for mistakes since some collection agencies are known break the law quite often, but that is a story for another article.) Collection agencies trick many consumers into acknowledging that a debt belongs to them and, once the debt has been acknowledged verbally or in writing, that acknowledgement may be enough to remove the debt from a time barred status, depending upon your state.
A second way that consumers get into trouble with zombie debt is by making a small payment on an old, time barred account. For example, a debt collector might contact you regarding an old account and ask you to make a small payment in good faith. Unbeknownst to the consumer, once any payment has been made on the account then the clock has been reset and the creditor once again has the right to sue.
Please do not misinterpret the previous paragraph as advising you not to pay a legitimate, albeit old debt. If you find yourself in a better financial situation where you can now afford to settle past mistakes then, by all means, go for it. However, you should be sure to settle any time barred debts in full rather than scheduling small, monthly payments. If you settle or pay the account in full then there will be no deficiency balance left for a creditor to come after and you can protect yourself from a potential lawsuit. Paying off your debts is admirable, and may be the right thing to do even if the debt has become time barred.
About the Author: Michelle Black is an 11+ year HOPE Credit Expert, the credit blogger at www.HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here.