Dealing with old debt

1/10/2011

One of my favorite features of MoneyManagement.org is the ability for consumers to submit questions and receive a personal answer via email. Our Ask the Experts column has been running for many years and in that time we have answered tens of thousands of questions related to credit, debt, and money management.

I recently received this question about old debt. Since it is a frequently asked question, I thought I'd share the answer here.

Question: I am looking to reestablish my credit. I have been cash-only for over a decade and have little current debt to speak of. However, I do have charged-off credit card accounts from 14 years ago that may or may not be actively in collections. I do not want them to hinder my current credit situation. I also have a items left over from a divorce settlement more than 7 years ago and some old medical bills. The total debt in possible collections is a few thousand dollars. Do I still owe these debts?

Answer: In most states, old debts do eventually die. Your state’s statute of limitations dictates a timeframe as to how long debt on an open-ended account is considered legally collectable. This timeframe has nothing to do with your credit report and is normally four to six years from when the payment becomes due. To learn your state's laws, contact your local consumer protection office. For a list of state and county consumer protection offices, please visit the Federal Citizen Information Center's website.

A n open-ended account is a revolving line of credit. Credit cards are open-ended accounts.

The fact that your debt’s statute of limitations has passed does not mean you don’t owe the money. However, it does mean that if a creditor tries to sue you for payment, you have a defense. Stand firm if you know that the statute of limitations on a debt has expired. Uncollected debts are often sold to collection agencies who aggressively attempt to collect—regardless of the timeframe.

You should know that activity on your account may impact when the statute of limitations expires. For example, if you make a partial payment, the creditor may claim that you have waived your rights to be protected by the statute of limitations. Depending on your state laws, the statute of limitations can be revised if you so much as acknowledge that you owe a debt.

There are a few types of debts that never expire. They include student loans and tax debt. In fact, if you have a delinquent student loan, the government does not even need to obtain a judgment to begin garnishing wages. Ignoring efforts by the IRS to collect on back taxes can also lead to the garnishment of your wages.

For help in establishing a repayment schedule for your student loan, contact the U.S. Department of Education Service Center at 800-621-3115. The IRS has taxpayer advocates to help solve problems that cannot be cleared up through normal channels; they can be reached at 877-777-4778.

As for your credit report, the federal Fair Credit Reporting Act (FCRA) states the longest any derogatory information can remain on your credit bureau file is seven years from the beginning of the delinquency that lead to the charge off or placement for collection. Even if you start to repay on the account, the seven year time frame does not re-start. The account still must be permanently removed from your credit bureau file.

There are exceptions to the seven year rule. For example, a if you file Chapter 7 bankruptcy, the notation will remain on your credit report for ten years from the filing date. Refer to the Fair Credit Reporting Act (FCRA) for details.

If you feel that the date of last activity has been improperly changed, you can write to the credit reporting agencies (CRA) disputing this information. When the CRAs receive your letter, the CRAs must investigate the item in dispute (usually within 30 days) by presenting the information you submit to the CRAs, to the collection agency. The collection agency must review your evidence and report its findings to the CRAs. The CRAs must give you a written report of its investigation, and a copy of your report if the report results in a change.

You can get free copies of your credit reports every 12 months by visiting AnnualCreditReport.com. Here are the names and email addresses of the three major credit reporting agencies: Equifax, www.equifax.com, Experian, www.experian.com, and Trans Union Corp., www.transunion.com.

You can also dispute the inaccurate item with the collection agency for violating the FCRA. The collection agency may not then report the information to the CRA without including a notice of your dispute. In addition, once you have notified the collection agency of the error in writing, it may not continue to report the information if it is, in fact, an error.

If you still do not receive any satisfaction to your dispute with the collection agency, your only remaining recourse would be to seek damages by suing them in state or federal court. Sections 616 and 617 of the federal Fair Credit Reporting Act permit you to sue for "Willful Noncompliance" or "Negligent Noncompliance" of the FCRA. A private attorney would need to assist you in this matter.

You can also file a complaint with the Federal Trade Commission, Consumer Response Center - FCRA, 600 Pennsylvania Ave NW, Washington, DC 20580. Although the FTC cannot resolve individual problems, it can act against a company if it sees a pattern of possible law violations.

When you write to the collection agency, inform them that you are familiar with the FCRA and these provisions of the Act and your intent to file a complaint with the FTC. Be sure to send your letter by certified mail, return receipt requested.