Photo (cc) by Jeff Kubina
Sometimes a little knowledge is a dangerous thing. For example, many people probably assume that because of the statute of limitations, after a certain period of time, they no longer owe a debt. Not true. Here’s a question to launch us into today’s topic.
Is there an expiration date for collection of a bill? I recently received a bill from 2006 and while I plan to pay, my husband and I were wondering if it is ever too late for a company to collect on a bill.
The short answer to your question, Phyllis, is no. Debts don’t expire. What does expire, however, are the legal remedies to collect them. In other words, while there’s no time limit when it comes to trying to get you to pay, there is a time limit for using a court to force you to pay.
How long can a company collect a debt?
Companies you owe can do lots of things to try to collect a debt. They can damage your credit, send a collection agency after you and sue you in court. But legal remedies don’t last forever. Nearly all transgressions in our society have a legal limit beyond which you can’t be successfully sued or convicted in court. It’s called the statute of limitations.
There are a few offenses not limited by statute — murder, for example — but most criminal and civil issues have a time limit. When it comes to debts, bills that can no longer be collected through the court system are called time-barred.
While there’s nothing preventing a company from attempting to collect forever, statutes of limitation, unique to each state, establish the time when legal remedies expire. To find the statute of limitations in your state, check out this chart from About.com, or this one from CreditCards.com. You can also do a search for “statute of limitations on debt [your state].”
In Florida, for example, a creditor has four years to collect a debt for open accounts, the category that includes most bills, including credit card debt. After that time, the statute of limitations will be a successful defense against collection.
Note that in most states, the statute of limitations doesn’t wipe out a debt. If you borrowed money, you still owe it. So a creditor can still call you, send you letters, or otherwise try to get you to pay. In fact, this is quite common. Collection agencies and law firms routinely buy old debts for pennies on the dollar and attempt to collect. And they’ve been known to say or do just about anything to get you back on the hook. They shouldn’t, however, threaten to sue you over a debt that’s time-barred.
Also note that while the statute of limitations is an effective defense if you’re sued, it’s typically not automatic. If you don’t show up and use it as a defense, it can be waived. In other words, while a collection agency shouldn’t sue you for a time-barred debt, it can happen. If it does, you need to be there when your court date rolls around. As with any criminal or civil proceeding, to win you need to appear and prove your case.
The laws regarding debt collection are tricky. For example, there are states that allow otherwise legally uncollectible debts to be reinstated if the consumer makes a payment — or even acknowledges the debt.
Remember, in the vast majority of states, the statute of limitations doesn’t wipe out a debt, it just eliminates the legal remedies available to collect it. So if you find yourself in this situation, and the bill in question is large enough to warrant it, the smart move is to call a consumer attorney (you can find one at the National Association of Consumer Advocates’ website) and ask them what to do.
Do this before responding to any collection notice or other contact from a collection agency. Otherwise, you might inadvertently make yourself liable for what was a time-barred debt.
Your credit report
What shows up on your credit report is determined by federal, not state, law. The credit reporting agencies (Experian, TransUnion, and Equifax) have to remove most negative information after seven years. Bankruptcies can remain on your report for up to 10 years, and there are some other, less common debts, like unpaid taxes and child support, that can remain on your report indefinitely.
The seven-year period normally begins 180 days after the debt becomes delinquent — the day you first missed a payment. But if you start once again making payments, the debt could reappear.
Here’s what to do
Since Phyllis is planning to pay her bill, she needn’t worry about any of this. But if you plan on not paying and using the statute of limitations as a defense, do more research. Start with the FTC’s page on time-barred debt.
But no matter how much you read and think you understand, I’d still advise at least talking to, if not hiring, an attorney. The more money at stake, the more important this becomes. Debt collection is a complex topic, and reading simple stuff online probably won’t answer all your questions or completely put you at ease. Talking to someone who does this for a living, however, will.
Use your payment to improve your credit history
If you agree to pay a delinquent bill that’s adversely affecting your credit history, don’t pay it without attempting to use your payment as leverage to have bad marks removed.
If you’re paying the creditor who originally reported the delinquency to credit reporting agencies, they have the ability to have the delinquent payments removed from your credit reports. Try to negotiate the removal of the bad marks in exchange for payment. If you’re successful, get it in writing before sending the money. This way you’ll get something additional for your payment: a better credit history and score.
For more on cleaning up your credit history, see “3 Steps to Fix Your Credit.”
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I founded Money Talks News in 1991. I’ve earned a CPA (currently inactive), and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. Got some time to kill? You can learn more about me here.
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