Re-aging old card debt can land you in court

By Erica Sandberg

Opening Credits

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com. Ask a question. 'Opening Credits' stories

Dear Opening Credits,
I am being sued for a past due credit card balance that happened about seven to eight years ago. I think I may have re-aged the debt by answering a phone call. My house is in my name. This story is not as cut and dried as it sounds. Do you have any advice to give me??? The debt has more than doubled in the past eight years from $4,000 to $14,000. I don't know how to pay that back. HELP!!! -- Tanya 

Dear Tanya,
Not to worry, help is here! I'm happy to inform you of your legal rights and explain how you can go about rectifying this problem. Once you know how you're protected and what to do, you can deal with this situation appropriately.

According to your first sentence, you are being sued for a debt. However, I wonder if you really are. It's possible that you're just receiving threatening letters and calls from a collection agency. Sometimes they sound like they're in the process of a lawsuit when they're not. Or not yet, anyway.

I'm guessing that what happened is this: First your debt was with your credit card issuer. You never paid it, so they sold the account to a collection agency. One of their employees tried to reach you to inspire a payment, to no avail.

The lawsuit clock began ticking the day your original creditor charged the debt off. State law dictates how long a creditor has to sue you for that balance. It can be anywhere from three to 10 years. If that time period is still in effect, you can be sued. But if it's passed, you can't be taken to court for it. Unless...

You re-aged or reaffirmed the debt. I really hope you did not, because that would mean that you started the clock again by promising to pay.

Think back. At some point you eventually did talk with the collector. Did you acknowledge that you owed the money and say or write that you'd begin making payments? If so, you may have reaffirmed the debt. And in that case, if you did not fulfill your promise, they can sue you for the balance due.

However, if you did not commit to sending any money and the statute of limitations has passed, you're in the clear. You can tell them that you do not want to be contacted again, and if they persist, you can send a cease-and-desist letter, as that will prevent further communication. The debt should not appear on your credit report either, because such negative notations can only remain for seven years. 

This is why it's so important to not restart the statute of limitations clock when the debt has run its legal course. Collection agencies know how it works, and are hoping that you do not. They bought the account  for a percentage of what you really owe, and are eager to turn a profit instead of losing their investment. If they can get you to sign a payment agreement or send a check, they've done their job.

Now, if you did reaffirm the account, you should deal with it right away. The collection agency can sue you (and may already be doing so). If you lose the case, you could also be subject to wage garnishments and other post-judgment nastiness. Can they take your house? That's not likely, but if you have other non-exempt assets, they can seize them.

Your options for resolution include paying in full, making installment payments or offering a debt settlement. This last one may be your best bet, since they would still make money if you paid more than what they did when they purchased the account. If all else fails, you can also file for bankruptcy and wipe the mess away for good.

See related: 9 questions to ask before you reaffirm an old debt,  6 bad reasons debtors reaffirm debt

Erica Sandberg's articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.

Send your question to Erica.

Published: November 21, 2012

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