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Most debts have a statute of limitations, which means the creditor isn’t supposed to sue the borrower in court to collect the debt after a certain number of years. The statute of limitations varies by the state and the type of debt, typically ranging from two to 15 years.

Here’s the thing: even a small, partial payment on an old debt can revive the statute of limitations. That can allow the creditor to sue you and get a wage garnishment order so it can take money right out of your paycheck.

If it were the original creditor suing you, you might resign yourself to the situation. But often the company filing the lawsuit is not the original creditor. Many times, the company that originally loaned you the money has long since written off the account, gotten a tax break for bad debt and sold the account to a collection agency. So the entity suing you may beĀ  a collection agency which purchased your debt for 2 or 3 cents on the dollar–or even less.

The Wall Street Journal has done some good stories lately on the debt-buying industry, and has one today about the FTC’s settlement with Asset Acceptance, one of the largest debt buyers. The FTC alleges people were coerced into paying debts beyond the statutes of limitations. In some cases, the FTC contended, Asset Acceptance reported details of the out-of-statute debts to the credit bureaus in violation of federal credit reporting laws.

Most of us feel a moral obligation to pay what we owe. If bad decisions or bad circumstances have left you with unpaid bills, though, you could be stepping on a land mine if you make a partial payment on old debts. Before you pay, you should understand whether the debts are within the statute of limitations. If they’re not, and you still want to pay, consider negotiating a lump-sum settlement that includes the collector’s promise not to resell any portion of the debt. This is tricky business, though, and you should educate yourself thoroughly before you make the attempt. DebtCollectionAnswers.com, a site run by credit expert Gerri Detweiler, is a good place to start.

 

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3 Comments

1

I recently got an early morning call from a collection agency stating that I needed to pay for this outstanding debt. I didn’t recognize the name of who I supposedly owed. I asked the caller when this debt was from…1987. I was floored. 25 years? I told them that 1) I was unemployed at the time and didn’t have the money to pay them and 2) it was such a long time ago that there was no way that I had any kind of records to prove if I did pay or not. Why do they think they can pull something like that?

2

If somebody’s trying to get you to pay a 25-year-old debt, just refuse to acknowledge that the debt is yours and tell them not to contact you again. In some states merely admitting that you owe the debt can reset the statute of limitations. Sending the collection agency a written letter telling them not to contact you again is even better, since according to the Fair Debt Collection Practices Act, they must honor such a request. (At least, until they sell the debt to a different agency and the process starts all over again. But mailing a letter every few years is better than paying hundreds or thousands of dollars to settle ancient debt.)

3

That’s good advice, Andy. Chances are with debt that old the collector can’t prove that it’s yours, in any case.