When does a debt get too old to collect?Waiting for the statute of limitations to pass is riskyBy Sally Herigstad
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To Her Credit
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Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com.
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Dear To Her Credit,
I
am getting sued by a creditor. The account is about six or seven years old. Can
the creditor collect money after all of this time? I live in Minnesota.
-- Jasmine
Dear Jasmine,
In Minnesota, the statute of limitations is six years, so at
first glance it would seem that a six- or seven-year-old debt is uncollectible.
(See our map for the statutes of limitations in other states.) Before you
decide you're safe, however, you need to consider a few other factors.
The first factor to determine is which state laws dictate
the statute of limitations for this debt. Although you live in Minnesota, the
fine print on your contract may say that the contract is bound by the statute
of limitations laws from the state of the issuer. Even if that's not the case,
if you've moved, the laws of the state you lived in when you took out the debt
may apply. It makes a big difference -- the number of years in statutes of
limitations laws vary from just a few years to over seven years, depending on
the state.
Next, you need to know the starting date of the statute of
limitations -- the window of time during which creditors may collect. For
example, say you opened an account in January 2005, made payments until
December 2006 and then stopped. The statute of limitations period does not
start until the account is delinquent, which would be sometime in 2007. (The
exact date it begins depends on state law.) In that case, the statute of
limitations would not be up until 2013, despite the fact that the account is
seven years old in January 2012.
Be careful not to unintentionally restart the statute of
limitations time period. Have you ever wondered why a collector begs you to
send any amount of money, no matter how ridiculously small, to apply to a debt?
He's trying to get you to restart the debt clock and acknowledge the debt as
yours. You can just as easily restart the time period by admitting the debt is yours,
agreeing to payments (with or without making any payments) or making a new
charge on the account.
If your debt is close to the statute of limitations, but not
quite there, you can still be successfully sued for payment. You will have to
make a deal with the creditor or face garnishment of your income.
If a creditor takes you to court and you believe the account
is past the statute of limitations, you can respond in court with proof that
the debt is too old to collect. If this is a significant debt, I recommend you
get legal counsel from someone familiar with the laws in your state.
One more thing to consider: If the debt is legitimate, why
not pay it off? The statute of limitations laws are designed to keep creditors
from popping up and claiming people owe money from the distant past -- so long
ago that no one can remember exactly what happened or prove anything one way or
another. Some people get the idea that all they have to do is sit tight until
the statute of limitations passes, and then they don't have to pay. If you
really owe the money and can afford to pay it, you should.
Remember that when a bill becomes too old to collect, it
doesn't drop off your credit history. It can stay there for seven years,
lowering your score and making your financial life more difficult all around. A
paid-in-full debt always looks better on your credit history than an unpaid
one, no matter how long it took to pay it off.
See related: State statutes of limitation for credit card debt, Avoid restarting the clock on time-barred debt
Sally Herigstad answers questions about credit every week for CreditCards.com. Herigstad is a certified public accountant, author and speaker. She also writes regularly for MSN Money, Interest.com, Bankrate.com and RedPlum.com, and has been a guest on Martha Stewart radio and other programs. You can read more about personal finance and download free budgeting worksheets at her website: www.sallyherigstad.com
To Her Credit answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to Sally.
Published: December 16, 2011
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