Dangers of Aging Debt: Be Careful When Contacted About Old Overdue Bills
February 6, 2012 ?? – The Federal Trade Commission has just cracked down on debt collector Asset Acceptance LLC for misrepresenting itself in trying to collect old debts. But this story is much bigger than a single company. There is a whole industry called the debt buying industry that you might not know about. It sounds strange, but your old unpaid debts have value and can be sold to other businesses. These companies buy back your old debt for a fraction of what you owe in the hope that they can get the full amount back from you and make a big profit. An old debt like this is nicknamed “zombie debt” because it never seems to die.
Here’s the tricky part: All states have statutes of limitations on how long you can be sued to collect a debt. And after seven years, the unpaid debts usually disappear from your credit report and are no longer held against you. The FTC accused Asset Acceptance of suggesting to debtors that it could sue them for debts that have exceeded the statute of limitations. They can’t do that unless you don’t let them. Asset Acceptance had to pay fines in a $ 2.5 million settlement and now has to disclose that it cannot sue for old debts that have passed the legal deadline. But the company said the settlement does not represent the admission of the FTC’s claims.
This is where “debt re-aging” comes in. Some consumers, on principle, will agree to make a payment on an old debt, not knowing that depending on where they live, this can reset the statute of limitations, giving the debt collector a new opening to sue. in court against them. The other way this can happen is when a collection company re-reports an old debt that has fallen off your credit report to the credit bureaus, so the seven-year period begins again.
As of this writing, it sounds so confusing, but here’s the bottom line: You are still responsible for debts beyond the statute of limitations. But if you are in dire financial straits, you should do your homework before you start paying it off, as you might be forced to pay off all of the debt when you aren’t able to. Worse yet, you could end up in court, where a debt collector could possibly garnish your paycheck or put a lien on your house to collect.
Your choices, as a consumer facing a claim for an old debt, sometimes referred to as a “prescribed debt”, have so many “ifs” and “butes” that I’m going to do something unusual and cut and paste the FTC clean advice brochure here, so I don’t spoil the explanation. First of all, here is the entire FTC brochure to consult. And below are the most important parts:
Federal Trade Commission Notice on Prescribed or Old Debt:
“The statute of limitations varies from state to state and for different types of debt. It is also tricky because under certain circumstances the clock can be reset and the period can be restarted to zero. That’s why the Federal Trade Commission (FTC), the national consumer protection agency, says it’s important to understand your rights if a debt collector contacts you about an old debt.
When is an old debt too old for a collector to pursue?
Generally, state law determines the length of the limitation period. Usually the countdown starts when you don’t make payment; when it stops depends on two things: the type of debt and the law that applies either in the state where you live or in the state specified in your credit agreement. For example, the statute of limitations for credit card debt in a few states can be up to 10 years, but most states impose a period of three to six years. To determine the statute of limitations for different types of debt under each state’s law, check with a legal aid lawyer, another lawyer or your State Attorney General’s Office.
What should I do if a debt collector calls for a prescribed debt?
Collectors are permitted to contact you regarding prescribed debts. They might 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 it might be – ask the collector if the debt is over the statute of limitations. If the collector answers your question, the law requires their answer to be truthful. However, some collectors may refuse to answer. Another question to ask a collector if you think a debt may be time-barred is when your last payment was made. This is important because it helps determine when the statute of limitations begins to run. If a collector doesn’t give you this information, send them a letter within 30 days of receiving written notice of the debt. Explain that you are “disputing” the debt and want to “verify” it. The more information you give the collector about why you are disputing the debt, the better. Collectors should stop trying to collect until they give you a verification. Keep a copy of your letter and the verification you receive.
Do I have to pay a debt that is considered time-barred?
The decision to pay a prescribed debt is yours. You have options, but each has consequences. For example, if you pay off the debt and how much you pay, it will affect your credit rating. Consider speaking with a lawyer before choosing an option.
• Don’t pay anything on the debt. Although the collector cannot sue you to collect the debt, you still owe it. The collector may continue to contact you to try to recover, unless you send a letter to the collector demanding that the communication stop. Not paying off debt can make it harder or more expensive to get credit, insurance, or other services, because not paying can lower your credit rating.
• Make a partial payment on the debt. In some states, if you pay an amount on a prescribed debt or even promise to pay, the debt is “rekindled.” This means the clock is resetting and a new limitation period begins. It also often means that the collector can sue you to collect the full amount of the debt, which can include interest and additional charges.
• Pay off the debt. Even if the collector cannot sue you, you can choose to pay off the debt. Some collectors may be willing to accept less than the amount you owe to pay off the debt, either in one large payment or in a series of small payments. Make sure you get a signed form or letter from the collector before making any payment. This document must indicate that the entire debt is in the process of being settled and that the amount owing will release you from any further obligation. Without this document, the amount paid can be treated as a partial payment on the debt, instead of a full payment. Keep a record of the payments you make to repay the debt.
The FTC brochure then explains what to do if you are sued for a prescribed debt, but hopefully you take the above steps and never let it come to that. Other useful links for FTC consumer education are: • Debt Collection FAQs: A Guide for Consumers • Dealing with Debt Collectors (video)