If you’ve been paying a collection agency for an old debt from a creditor you don’t recognize, first find out if the debt is valid. If it is, the collection agency’s threats to sue you are legitimate, and you could end up with your bank account or wages garnished. If it isn’t, you must dispute it.
Dear Keeping Score,
Hello, I’ve been paying a collection company since 2011, but I don’t remember who the original debtor was. The balance is still high. They said if I don’t pay they can take me to court for a small claim and garnish either my bank account or paychecks.
Is that true? What do you recommend? – Alex
Let me get this straight. You’ve been paying a debt from someone you don’t recognize or remember for eight years?
What do I recommend? I recommend you get serious and figure this out. If you have really been paying on this debt for eight years now, I’d say that in fact, it is way past time to start paying attention to details.
First off, if you don’t recognize the creditor(s) you need to dispute the validity of the debt. It might be helpful to hire a reputable attorney to demand proof that the debt is really yours. If you can’t afford an attorney try contacting legal aid in your area. They may be able to help for free or at a reduced cost.
The Fair Debt Collection Practices Act gives you the right to receive a validation notice from your collector. This will include how much you owe, the name of the original creditor and the procedures you must follow if you don’t think you owe the money.
If you don’t think you owe the money, write back to your collector within 30 days using certified mail with a return receipt requested and ask them to provide you with proof of the debt. Until the debt is verified, collection activity must stop.
Keep copies of everything. You are going to need a clean paper trail in case this does end up in court. Check out these tips from the Federal Trade Commission if you still have questions when the collector gets back to you.
See related: CFPB’s fair debt collection update proposal elicits negative feedback
What happens if the old card debt is valid?
If the debt is valid and they can show you documentation substantiating what you owe, then the collection agency can demand payment and can sue you in court. If the judge agrees with them, the court may issue a judgment saying that you must pay.
If you can’t pay the debt off or come to terms on a payment schedule, they can go back to court and ask the court to allow the garnishment of either your bank account (within limits) or a portion of your wages (depending on your state law).
If you receive a summons for a court action it is important that you show up and explain your position to the judge. Failure to show up will almost certainly lead to the court issuing a judgment against you.
You mentioned that your debt may be over 10 years old. It is true that under certain circumstances a debt that is very old can be uncollectable, which seems to be what you are implying. The reason is each state has a statute of limitations saying how long you can be pursued in court for a debt.
Here is where it gets interesting if you haven’t made any payments on the debt. Making a payment of any kind during that period will restart the clock to sue you for the debt in your state.
So if you have stopped making payments, depending on what state you live in, you may be beyond the reach of these collectors. The payments you have been making could mean that the clock has been restarted, even though the original debt was incurred more than 10 years ago.
Credit score effect of old card debt
From a credit scoring standpoint, at least, I believe you are out of harm’s way. Delinquent debts that are reported to the credit bureaus remain on your credit report for seven years (after the date the account first went delinquent and was never brought current) and then they will age off of your report.
Making payments to a collection company will have no scoring impact on a debt that is over seven years old. Even though this debt is probably no longer showing up on your credit report, you should find that out for sure. Go to AnualCreditReport.com to get your copies of your free credit reports so you can check. If you see any out-of-date errors, follow the procedures outlined and they will be removed.
See related: Do card issuers remember my very old mistakes?
You may be reaching the end of the statute of limitations
I have a feeling the collection company is coming up on that fateful moment when the statute of limitations clock strikes midnight and you can no longer be sued in court for the debt. This is why they are contacting you and saying they can take you to court.
Can they do that? If they are within the statute, yes, they can. And yes, if you lose, you could face garnishment. This is why it is extremely important that you not ignore any court summons you receive.
Also, you need to know that even if the debt is no longer on your credit report and has been become uncollectable through the courts, it won’t just go away. You still owe the debt. How you choose to deal with that is up to you, but simply ignoring it is not a good option.