Creditors have a specific window within which they can collect on a debt. While the exact amount of time varies from state to state, it generally begins on the date the first payment is missed and ends based upon the type of debt it is, along with — as we mentioned before — the law in the state specified in the loan agreement. Once that window closes, the statute of limitations kicks in and the obligation is considered to be time-barred debts.
Why Does This Matter?
Technically, while a debtor can no longer sue you for repayment, you do still owe the debt. And, creditors can still come after you, toothless though they may be at that point. According to the Federal Trade Commission, you’ll have the following choices:
Pay nothing on the debt
Although the collector may not sue you to collect the debt, you still owe it. The collector can continue to contact you to try to collect unless you send a letter to the collector demanding that communication stop.
Make a partial payment on the debt
In some states, if you pay any amount on a time-barred debt, or even promise to pay, the debt is ‘revived.’ This means the clock resets and a new statute of limitations period begins. It also often means the collector can sue you to collect the full amount of the debt, which may include additional interest and fees.
Pay off the debt
Even though the collector may not be able to sue you, you may decide to pay off the debt. Some collectors may be willing to accept less than the amount you owe to settle the debt, either in one large payment or a series of small ones. Make sure you get a signed form or letter from the collector before you make any payment. This document should state that the entire debt is being settled and that the amount to be paid will release you from any further obligation. Without this document, the amount paid may be treated as a partial payment on the debt, instead of a complete payment. Keep a record of the payments you make to pay off the debt.
If you do decide to pay off the debt, you might consider working with a debt settlement company to get the concessions mentioned above from the lender. As these Freedom Debt Relief reviews attest, this can make paying the obligation off less costly.
You Must Tread Carefully
As the FTC mentioned above, it’s entirely possible to inadvertently restart the clock on a time-barred debt. Admitting ownership of it to a collections person, agreeing to make a payment on it or sending a partial payment toward it will revive the debt.
Thus, when you’re communicating with debt collectors you must be careful to word your responses to avoid any admissions, even as you seek to glean information about the debt.
Oh, by the way, time-barred debt can be sold from collector to collector. Thus, while you might think you have the debt solidly behind you, another new company may have just bought it and the process will begin again.
In other words, while you’re under no obligation to pay, collectors are not obliged to stop contacting you in an effort to get you to do so either.
Defending Against a Time-Barred Debt
The FTC offers the following advice if you’re sued to collect a time-barred debt. Respond and show up in court. Failing to do so could result in a legal judgment giving the collector the right to attach your paycheck, bank accounts or tax refunds.
Inform the judge of the time-barred status of the debt and provide verification of the date of your last payment. The lawsuit will be dismissed if the judge decides the debt is time-barred.
Suing you or threatening to sue you over a time-barred debt is against the law. You can file a complaint with the FTC and your state Attorney General against the collector for violating your rights under the Fair Debt Collection Practices Act.