Maybe you can’t pay. Or maybe you don’t pay. Either way, you have an old debt hanging out there. What if you just decide to let it go and do nothing about it? This is what Credit.com reader Dave, who says he can’t afford to pay off his old debt, asks:
My credit card debt is approximately $ 12,000. I have consulted a bankruptcy administrator. He said filing for bankruptcy shouldn’t be my first option as the amount is pretty low. And the collectors have stopped calling.Does California have 3 or 4 years for the debt collection company to file a lawsuit? After this time you cannot complain? What happens then? Can you still collect, but not sue? Debts still remain on credit files.If you can’t sue me since it’s been about 4 years [it] went into debt collection and the attorney said filing such a small amount was not a good idea, then what?
Dave’s question is hardly unusual. Many people wonder what happens if they just don’t do anything about an old debt.
“There’s no law that says you can’t try to move in after the statute of limitations has expired,” said Robert Brennan, a consumer law attorney in southern California. At least not in California, where he practices, and it is the same in most states – however, if you are contemplating this step, be sure to consult an attorney who knows your state’s rules. “In California, the law of written contracts lasts four years from the date of the breach, which in most cases is likely to coincide with the date of the first default in payment.”
He goes on to say that “The Fair Debt Collection Practices Act requires debt collection agencies not to misrepresent debt collection or to initiate or threaten legal action that cannot be taken. So if a debt collection company threatens to sue the consumer after the statute of limitations has expired, it may well be an FDCPA violation, and I would argue that it is. If a debt collection company informs a consumer that they can sue the consumer five years after the date of the first late payment, this is a misrepresentation in connection with the debt collection and is also subject to appeal under the FDCPA. “
So if a debt collection agency threatens to go to court after the statute of limitations has expired, you can actually sue them, which may then owe you money.
Does that mean Dave won’t hear about this debt anymore? Probably not. “If a collector is making routine collections phone calls and is not otherwise violating the FDCPA or misleading the consumer, they can continue to attempt to collect the debt,” Brennan says. That said, consumers always have the right to tell a debt collection agency not to contact them, and if the debt collection agency keeps calling, they may break the FDCPA again.
The statute of limitations varies from state to state and can be different for different types of consumer debt. In many countries, they are often between four and six years from the last payment of the debt.
Collections & Your Balance
As far as Dave’s credit reports are concerned, these debts cannot be reported forever. Collection accounts can be reported for seven years plus 180 days from the original overdue date – the date on which it first fell into arrears with the original creditor. So if he missed a payment to his credit card company on January 1, 2000 and it was later sent to debt collection agencies, January 1, 2000 is the original overdue date.
After this 7 1/2 year period has expired, all collection accounts in connection with this particular claim can no longer be reported, regardless of whether they have been paid or not. However, there is a risk that one of the current collectors will sell the account to another collection company, thereby creating a new collection account.
Not only is Dave wondering about his old debts, but what to do about his creditworthiness in the future:
Would you suggest that I apply for a secure card (can I?) Even though I am in debt? And would a NEW secure card improve my FICO even though my old debts are on my files?
A secured card that requires the cardholder to leave a deposit with the issuer is often an excellent option to rebuild credit, and the applicant usually does not need to have a good credit rating to get one of these cards as the line of credit is fully secured is through the deposit, at least initially. (Here we explain secured credit cards in more detail.)
When it comes to rebuilding credit, it’s usually best to get started ASAP. It takes time to build positive credit references. One of the factors used to calculate creditworthiness is the age of the accounts.
At the same time, however, Dave should also think about how he can support his finances so that he has adequate savings in case he gets into difficult times in the future. He can review his credit history for free once a year and monitor his credit history for free on sites like Credit.com (updates are available every 14 days), where he can also get a plan of action to improve his credit score over time. As these unpaid accounts get older and his new account gets paid on time, he should see his credit continue to improve.
This article was updated on March 1, 2017.
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