Is It Legal to Collect on Old Debts?
Leave a debt unpaid and you can expect that sooner or later it will end up in the files of a collection agency. Collection agencies are companies whose business it is to collect on old, seemingly uncollectible debts they’ve purchased from private creditors. Although a debt collector can attempt to collect a debt at any times, the methods debt collectors can legally use are at least partially dictated by the age of the debt.
The Statute of Limitations for Debt Collection
Your state’s statute of limitations for debt collection is something you should be paying very close attention to if you currently have a debt that is in collections or have had any past debts go into collections.
Contrary to popular belief, the SOL on your debts doesn’t prevent your creditors from being able to collect debts. It only restricts the amount of time a creditor may file a lawsuit against you for that debt and obtain a court judgment that can be used to force you to pay. Every state carries a different statute of limitations
The SOL vs. The Reporting Period
Don’t get the statute of limitations for your state mixed up with the amount of time the debt can remain on your credit report. These two commonly confused time frames have absolutely no connection to one another. The reporting period is set by the federal government while the statute of limitations is set by the state government.
Resetting the Statute of Limitations
Making a payment to a collection agency on a debt that is out of statute resets the statute of limitations. Once the SOL resets, the collection agency may then legally file a lawsuit against you regardless of the age of the debt. Thus, making a payment on a debt that is 15 years old will automatically reset the time period the collection agency has to sue you.
Some collection agencies use this to their advantage. By convincing a debtor to pay just a few dollars toward an old, defaulted debt, the company then regains the right to take him to court for the rest. Once it wins a judgment against him, it can garnish his wages, put a lien on any real estate he owns or seize his bank accounts. Like the statute of limitations, the rights a judgment creditor has following a court judgment vary by state.
Once again, don’t get the SOL confused with the reporting period for a given debt. The SOL can be reset. The reporting period, however, cannot.
The Legality of Zombie Debt Collection
While it is perfectly legal for a collection agency to collect old debt if a consumer submits payments voluntarily, it isn’t legal to file a lawsuit against a debtor for a debt that is out of statute. Unfortunately, this doesn’t stop many unscrupulous collectors from doing just that. If you don’t know a lawsuit has been filed against you, you can’t use your state’s expired SOL as a defense. This results in the court granting a judgment to the collection agency by default. Not only will the judgment damage your credit rating significantly, it could result in a wage garnishment, bank account levy or real estate liens.