All About the Statute of Limitations on Debt

All About the Statute of Limitations on Debt

Paying off debt can be an excruciating process, depending on how much money you owe. But your debts may not haunt you forever. Most consumer debts have a statute of limitations. That means that after a certain amount of time has gone by, collectors can’t sue you for failing to pay off outstanding debts. Here’s everything you need to know about the statute of limitations on debt.

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Understanding the Statute of Limitations on Debt

You can be taken to court for not paying off certain debts. But there’s a limit on how long debt collectors can chase after the borrowers they want to sue.

The period in which someone can take legal action against you for owing money is known as the statute of limitations. In many cases, that time period either begins on the date you last made a payment or when your account becomes delinquent (which usually happens 30 days after a borrower fails to make a payment). But sometimes, the statute of limitations begins whenever you last used the account, acknowledged that you owed debt or agreed to make a payment (more on that later).

Statutes of limitations offer consumers with old debts some protection from debt collection agencies. After the statute of limitations on a debt expires, that unpaid debt is considered to be time-barred. At that point, borrowers no longer have a legal obligation to pay off their debts.

Different states have different statutes of limitations. And there are different rules attached to different types of debts. In Iowa for example, the statute of limitations on credit card debt is 10 years. In Alaska, Alabama and Washington D.C. it’s only three years.

Not all consumer debts have a statute of limitations, however. Federal student loans, for example, haven’t had a legal expiration date for over two decades.

What to Do With Time-Barred Debts 

All About the Statute of Limitations on Debt

While you may no longer be legally responsible for your time-barred debts, you’re not totally off the hook. Most negative credit information – like unpaid debts – can stay on your credit report for up to seven years. But tax liens can remain on your credit report for up to 15 years and bankruptcies can be reported for 10 years.

Not repaying the old debt you owe after the statute of limitations expires could hurt your credit score. And you could have a hard time trying to buy a house or take out a new loan.

Related Article: The Worst Ways to Deal With a Bill Collector

If you decide to pay off an old debt, it’s important to make sure you have documentation confirming that the debt is yours before making a single payment. You may have to pay off your debt in full in order to avoid restarting or extending the statute of limitations on your debt. So talking to a lawyer before making a single payment is a good idea.

When a Collector Asks About Your Time-Barred Debt

Even though you can’t be sued for your time-barred debts, a debt collector may try to come after you anyway. Bill collectors are required to follow certain rules under the Fair Debt Collection Practices Act (FDCPA). But they have the right to contact you even after the statute of limitations on a debt runs out. If a debt collector threatens to sue you for a time-barred debt, he or she could be violating the FDCPA.

Statutes of limitations can be tricky. So if you’re not sure whether your debt is past its legal expiration date, it’s a good idea to ask a debt collector who contacts you if your debt is time-barred. If he or she says no, it’s best to ask for the date of the last payment and request written proof that the debt they’re trying to collect is actually yours.

You’ll need to be careful when speaking to debt collectors, especially when dealing with a debt you believe is time-barred. If you say the wrong thing, the statute of limitations could be restarted or extended and you could end up having to pay a bill collector what you owe. The debt collector could also sue you and win.

The clock on your debt can restart if you admit to owing a debt, promise to start paying it or attempt to start repaying it by sending money to a debt collector. But the guidelines associated with extending and restarting the statute of limitations vary depending on where you live.

Related Article: Understanding Debt

Final Word

All About the Statute of Limitations on Debt

If you don’t know if the statute of limitations on your debt has expired, you can check with someone from a local legal aid society, an attorney or your state attorney general’s office. Or you can figure it out yourself by finding out when the statute of limitations begins and looking up your state’s laws regarding the statute of limitations on debts.

After you can confirm that the statute of limitations on your debt has in fact expired, you’ll have to decide what to do with it. You can pay off the debt and improve your credit score or ignore it and wait until it disappears from your credit report. You could also dispute the old debt or try to work out an agreement so that you end up paying less than what you owe your creditor.

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The Worst Ways to Deal With a Bill Collector

The Worst Ways to Deal With a Bill Collector

Dealing with a bill collector is never fun and it can be particularly stressful when you’re sitting on a mountain of debt. Sometimes debt collectors fail to follow the rules outlined in the Fair Debt Collection Practices Act. If that’s the issue you’re facing, it might be a good idea to file a complaint. But if you’re personally making any of these mistakes, your debt problem could go from bad to worse.

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1. Ignoring Debt Collectors

Screening calls and avoiding bill collectors won’t help you get your debt under control. Debts generally have a statute of limitations that varies depending on the state you live in. Once it expires, the collector might not be able to sue you anymore. But you could still be responsible for paying back what you owe in addition to any interest that has accumulated.

In addition to the potential legal consequences of unpaid bills, letting old debt pile up can destroy your credit score. Unpaid debts can remain on a credit report for as many as seven years. So if your debt collector is getting on your last nerves, it might be best to stop hiding and face him head on.

2. Saying Too Much Over the Phone

The Worst Ways to Deal With a Bill Collector

If you decide to stop dodging your bill collectors, it’s important to avoid sharing certain details over the phone. You never want to say that you’ll pay a specific amount of money by a deadline or give someone access to your bank accounts. Anything you say can be used against you and agreeing to make a payment can actually extend a statute of limitations that has already run out.

A debt collector’s No. 1 goal is to collect their missing funds. They can’t curse at you or make empty threats, but they can say other things to try and scare you into paying up. Staying calm, keeping the call short and keeping your comments to a minimum are the best ways to deal with persistent bill collectors.

Related Article: Dealing With Debt Collectors? Know Your Rights

3. Failing to Verify That the Debt Is Yours

When you’re talking to a bill collector, it’s also wise to avoid accepting their claims without making sure they’re legitimate. Debt collection scams are common. So before you send over a single dime, you’ll need to confirm that the debt belongs to you and not someone else.

Reviewing your credit report is a great place to start. If you haven’t received any written documentation from the collection agency, it’s a good idea to request that they mail you a letter stating that you owe them a specific amount of money.

If you need to dispute an error you found on your credit report, you have 30 days from the date that you received formal documentation from the collection agency to notify them (in writing) that a mistake was made. You’ll also need to reach out to each of the credit reporting agencies to get the error removed. They’ll expect you to mail them paperwork as proof of your claim.

4. Failing to Negotiate the Payments

The Worst Ways to Deal With a Bill Collector

No matter how big your debts, there’s usually room for negotiation when it comes to making payments. If the payment plan your bill collector offers doesn’t work for you, it’s okay to throw out a number you’re more comfortable with.

Sometimes, it’s possible to get away with paying less than what you owe. Instead of agreeing to pay back everything, you can suggest that you’re willing to pay back a percentage of the debt and see what happens. A non-profit credit counselor can help you come up with a debt management plan if you need assistance. Whatever you agree to, keep in mind that the deal needs to be put in writing.

Related Article: All About the Statute of Limitations on Debt

5. Failing to Keep Proper Documentation

Whenever you communicate with a bill collector, it’s a good idea to take notes. Jotting down details about when you spoke with a collector and what you discussed can help you if you’re forced to appear in court or report a collector who has broken the law. Collecting written notices from bill collectors and saving them in a folder can also help your case.

Bottom Line

Dealing with bill collectors can be a real pain. By knowing how to interact with them, you’ll be in the best position to get rid of your unpaid loans and credit card debt (that is, if you actually owe anything) on your own terms.

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