Know your Statutes of Limitations

“Can you just make a small payment as a show of good faith?”  Have you been called by a collection agency trying to collect on an old debt?  This is big business right now, so if you’ve EVER had a debt in collections that was never paid (or never reported as paid after you paid it), expect a phone call.

Collection companies are buying up old debts – often called “Zombie Debts” – in huge volumes right now and turning them over to their collection agents.  But before you enter into any sort of agreement to repay that old debt, be aware you just might not legally owe it anymore.

The Federal Trade Commission and the State Regulators have agreements in place called “Statutes of Limitations” that set specific time frames for how long you are legally obligated to repay your old debts.  The confusing part of all this is that different types of debts are treated differently, and each State has set their own rules for time frames.

States have different time frames

So an old credit card debt in Nebraska, for example, will be treated differently than that same debt in the state of Washington.  Making it even more confusing is that if you have moved from one state to another since you opened that account, the creditor gets to choose which State’s law to use.

Still, it is worth checking out the Statutes of Limitations for your State before you repay something you don’t have to.  A real good sign that your old debt is beyond the time limit is the way your collector is handling your account.  Of course they’ll try to get the whole amount out of you first.  And then they’ll start offering you discounted settlement amounts.  But the final step is where they get very aggressive:  “Could you just make a small payment as a show of good faith?  Even $5.00 will do it.”

Why do they want you to make such a small payment so badly? 

Don’t they have better things to do with their time than try to collect $5.00 from you?  The answer is that ANY payment that you make towards these old debts will reset the time limit.

If you make even a $5.00 payment towards an old account – your Statute of Limitations starts over again.  Why?  Because the time limit starts from the date of your last activity on that account.  If you make a small payment, you are acknowledging that the debt is yours and are agreeing to repay it.

When dealing with phone collectors, I have two rules for you to follow:

• Never admit over the phone that the debt is actually yours – even if it is.  Just ask them to send you proof that the account is yours and a summary of what you owe.  Once you get that, you can decide to deal with them or not.  But (and remember that all these phone calls are being recorded) once you admit that account is yours, you are making it that much easier for them to get a court judgment against you.  
• Never pay a collection over the phone.  ALWAYS ask for a settlement letter by mail before you send any money in.  And while they are sending you the settlement letter, make sure the debt is yours and that the Statutes of Limitations haven’t expired.

In my State (Washington), the Statute of Limitations on a credit card debt is a surprisingly low 3 ½  years.  No payment in the past 3 ½ years?  No more legal obligation to repay the debt.

Want to find out more or find out your State’s limits?  Just search “Statutes of Limitations __Your State__” and you’ll find charts a-plenty.

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