Avoid restarting the clock on time-barred debt

The Credit Guy columnist Todd Ossenfort
Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly "The Credit Guy" column, answering reader questions about credit counseling and debt issues.

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Question for the CreditCards.com expert

Dear Credit Guy,
I used to live in Chicago. My mother was ill, so I moved to Utah to help take care of her. I'm not making very much money here, but I would like to pay off two credit cards I have, which both have balances of around $3,000. I'm being charged 25 percent interest. I am 60 years old, making only $15 an hour.

I called the recovery department, and it was not flexible on giving me a better deal to pay off these two cards even though both have been inactive for more than five years. Will they use the statute of limitations (SOL) of where accounts were opened or where I live now? I believe they were opened in either Anchorage, Alaska, or Lenox, Mass. How many years away am I on these cards from reaching the SOL? I would like to be informed before contacting them further. Please give me the best information you have for guidelines on how to get these people to work with me. I'd like to pay off these debts, but if they only want to play hardball with me when the debts may have already passed the SOL or close to it, then why cooperate? I appreciate your help.  -- D. Carter

Answer for the CreditCards.com expert

Dear Ms. Carter,
I applaud your efforts to make good on your debt even though it may no longer be legally collectible due to the statute of limitations. The debt may be past the SOL for collection, but it will still remain on your credit report for seven years from the last date of delinquency. Paying the debt will not help improve your credit score, but it will make you more attractive to potential lenders in the future. From the perspective of a lender, a paid account, even if it is paid late, is always better than an unpaid account.

The general rule that applies when a creditor sues to collect a debt is that the suit must be filed in the state in which you live and the statute of limitations for your current state of residence would apply, which in Utah is four years. However, some credit card agreements include language that all terms included in the contract are subject to the laws of the state where the bank that issued the credit card is located. If your cardholder agreement includes this language, then the SOL for the state where the issuing bank is located may apply.

The tricky part of using SOL as a defense against collection of a debt is that certain actions can restart the clock (the SOL is determined from the last date of activity on the account). What specific actions can restart the clock on an SOL vary by state law. Most will restart the clock with any type of payment, but other actions such as agreeing to a payment plan, etc., may restart the clock in some states. Check the Utah state law regarding its statute of limitations rules.

If you decide that you would still like to repay the debt in a way that is affordable for you, I suggest you begin by getting free copies of your credit report from annualcreditreport.com and finding out exactly who currently owns the debt. You say you spoke to the recovery department at the bank that issued your card. It would be unusual for a bank to keep an unpaid debt for five years. It is more likely that the debt was charged off and sold to a collection agency. What I encourage you to do is review your credit reports to see how your credit card accounts are listed and if you have any collection accounts associated with those accounts.

Armed with the information you have gleaned from the Utah SOL laws, contact whoever now owns your debt and explain that you are aware you can no longer be sued to collect the debt. Offer to pay the amount that you have decided you can afford to pay monthly and then the ball is in their court. If they accept your offer, request that the repayment schedule be put in writing and don't send them a payment until you receive the written agreement. If the collector declines your offer, I recommend you send a letter to each creditor certified mail with a return receipt requested that you do not owe the debt due to the SOL and do not wish to be contacted about the debt in the future. Keep copies of the letters and the receipts and know that you have done what you could to pay what you owe.

Take care of your credit!

See related: State statutes of limitation for credit card debt, all 50 states, Know your rights: Fair Debt Collection Practices Act, 9 questions to ask before you reaffirm an old debt

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Updated: 11-24-2017