If you have old debts, collection agencies or collectors may not be able to sue you to collect them. This is because debt collectors have a limited number of years – what is known as a statute of limitations – to file a claim for collection. After that deadline has elapsed, your debts will be considered “prescribed”. As established by law, a debt collector cannot sue you for not paying a prescribed debt.
This can be a somewhat confusing issue for consumers because the statute of limitations varies according to the state and the different types of debts. It can also be a complicated issue because under certain circumstances, the clock may return to zero and then restart the applicable period of time. For these reasons, the Federal Trade Commission (FTC), the national consumer protection agency, believes it is important that you understand what your rights are if a debt collector contacts you to try to charge you an old debt.
The Fair Debt Collection Act defines as a debt collector anyone who regularly collects debts owed to third parties. This term includes collection agencies, lawyers that collect debts on a regular basis, and companies that buy unpaid debts to try to collect them. The term ‘debt collector’ does not include original creditors who attempt to collect debts from their own debtors.
From when is a debt considered too old for a debt collector to sue a debtor?
Generally, the statute of limitations is established by state law. Usually, the clock starts working from the moment you fail to pay; and when the watch stops, it depends on two factors: the type of debt and the applicable law, either that of your state of residence or that of the state specified in your credit agreement. For example, in a few states, the statute of limitations for credit card debts may be 10 years, but in most states a period of three to six years is imposed. To determine the statute of limitations applicable to the different kinds of debts under each state law, consult a legal advisor (in English), a lawyer, or ask the corresponding State Attorney General’s Office (in English).
The statute of limitations of a debt is usually different from the period for which the debt is reported on your credit report. In general, negative information stays on your credit report for seven years.
What do I have to do if a debt collector calls me to collect a prescribed debt?
Collectors may contact you to try to collect prescribed debts. In that case, they would have to inform you that the debt is prescribed and that they cannot sue you if you do not pay it.
If a debt collector does not tell you that a particular debt is prescribed – but you think it may have already been prescribed – ask the debt collector if the debt exceeded the prescribed deadline. If the debt collector agrees to answer your question, the law requires you to give a truthful answer. However, some collectors may refuse to answer your question. Another question to ask a collector in case you think that the debt may have been prescribed is what is the date recorded in your records as the date of your last payment. This is an important point because it helps determine when the statute of limitations clock starts working. If a collector does not provide this information, send a letter within 30 days after the date on which you receive a notice notifying you of the debt. In your letter you have to explain that you are ‘disputing’ the debt and that you want to ‘verify it’. The more information you can give the collector about the reasons for your dispute, the better. Collectors should stop trying to collect the debt until they provide verification. Keep a copy of your letter and verification.
Do I have to pay a debt considered prescribed?
The decision to pay a prescribed debt is up to you. You have some options, but each option has its consequences. Before choosing an option, talk to a lawyer.
- Do not pay anything. Although the debt collector cannot sue you to collect the debt, you still owe it. The collector may continue to contact you to try to collect the debt, unless you send him a letter demanding that he stop communicating with you. Failure to pay a debt can reduce your chances of getting credit, insurance or other services, or it may make your cost more expensive, because non-payment can lower your credit rating.
- Make a partial payment. In some states, if you pay any amount of a prescribed debt, or even if you only promise to make a partial payment, the debt “revives.” This means that the clock returns to zero and a new period is started to determine the prescription. Frequently, this also means that the debt collector can sue you to collect the full amount of the debt, which may include additional interest and charges.
- Cancel the debt. Although the debt collector cannot sue you, you can decide to cancel your debt. Some collectors may be willing to accept a lower amount than you owe to pay off the debt, either in a single bulky payment or in a series of lower installments. Before paying a penny, make sure the bill collector gives you a signed letter or form. This document must establish that the total debt is being paid and that the amount to be paid will exempt it from any other obligation. If you do not get this document delivered to you, the collector may consider that amount as a partial payment instead of a full payment. Keep a record of the payments you make to cancel the debt.
What should I do if I am sued to collect a prescribed debt?
Defend yourself in court. If you are sued to collect a prescribed debt, address the issue and respond. Consider talking with a lawyer. You or your lawyer should inform the judge that it is a prescribed debt, and as proof, provide a copy of the verification provided by the collector or any information you have that shows the date of your last payment. If the judge decides that the debt is prescribed, he will dismiss the claim. However, do not ignore the demand. If you do not respond, the debt collector is likely to obtain a court ruling against you, and you may be charged the money from your paycheck, your bank account or your tax refund.
Enforce the rights granted by the Fair Debt Collection Act. It is contrary to the law that a debt collector demands it or threatens to sue him to collect a prescribed debt. If you think that a debt collector has acted illegally, file a complaint with the FTC and the corresponding State Attorney General’s office, and consider speaking with a lawyer about the possibility of filing your own private action against the debt collector for violating the provisions of the Fair Debt Collection Act.