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Not too long ago, the only people who had to worry about legal limitations on old debt collections were folks who didn't pay their bills.
Today, however, increasingly aggressive collectors are going after people for debts they've already paid or that aren't even theirs. Knowing something about so-called "statutes of limitations" on debts can help you deal with misdirected or belligerent collection attempts.
Here are just a few examples from my mailbag:
- Suzy from New York City was fielding calls from a so-called "debt repurchaser," a company that buys old debts from other collection agencies. The repurchaser demanded payment for a credit card bill that Suzy paid through a credit counselor, but she'd long since lost all her records regarding the account.
- Jerri's credit card number was stolen and used to call a 900 number, a premium call that cost more than $200. Her credit card issuer removed the charge and reissued new cards. Apparently the 900-number service provider turned the debt over to a collection agency, because three years later she started getting calls demanding payment.
- Brian in West Hollywood messed up his credit big-time in his early 20s, but his father stepped in, paid off his bills and closed all his accounts. Nearly 15 years later, Brian had rebuilt his credit and was looking forward to buying his first home when he got a disturbing call from a collection agency. "They claim I have an outstanding debt of $387.30 from the early 1990s," Brian wrote. The debt was supposedly from a credit card that Brian doesn't remember ever having. "They have threatened that if I do not pay this, it will damage my credit report. . . . I feel like this is a scam, but I don't know. . . . I am nervous about any negative marks on my credit report."
The Federal Trade Commission and state regulators around the country have taken action against collectors that have tried to resuscitate old, paid-off debts or that hounded people about debts that weren't theirs. But you can't always count on regulators intervening in your case, so knowing something about debt limitations can help you defend yourself against the worst practices.
How old is too old to collect?
There are two major types of limitations on debt that you need to know -- and that many people confuse.The first has to do with how long debt problems can show up on your credit reports. Federal law typically requires credit bureaus to drop negative information after seven years. The clock usually starts ticking 180 days after the account first goes delinquent (in other words, when you miss your first payment on the account). There are exceptions: Bankruptcies can remain on your credit reports for up to 10 years, and some debts, such as unpaid tax liens, can stay on your reports indefinitely.
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Collectors can't legally restart the seven-year clock by "re-aging" the debt (giving it a new delinquency date) or by selling it to another agency. (The FTC shut down one large collection agency, CAMCO, after charging the company repeatedly re-aged debts in its attempts to collect.)
The other curb on debt collection is the statute of limitations, which gives creditors a certain time period -- in most states, three to six years -- in which to sue you over a debt.
Statutes of limitations vary widely by state, and by the type of debt, according to attorney John Lamb, co-author of "Solve Your Money Troubles: Get Debt Collectors off Your Back & Regain Financial Freedom." States often have different rules for oral and written contracts, as well as for "closed-end" contracts such as installment loans and "open-ended" contracts, which typically (but not always) include credit card accounts.
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