Do you owe unpaid debts? If so, you need to carefully read this entire article.
We’ve heard the colorful expression, ‘diamonds are forever.’ But ask yourself: can lenders/creditors force consumers to owe a debt forever?
By owing debts the honorable thing to do is pay off the debt, right? Yet life, in general, is often fraught with the reality of financial hardship, especially if the loss of a job or debilitating illness within one’s family strikes a person’s life without warning, making it difficult to pay the debts we owe.
Flip The Script
So let’s flip the script for a moment.
What’s important for Americans to know about unpaid debt is that debt doesn’t always last forever because the statute of limitations usually expires on the debts owed to lenders, creditors, and debt collectors.
You’ve heard correct.
The statute of limitations expires on a debt no matter the amount, yet it is also important to know there are various kinds of past due debts with sticky rules attached to them.
“Determining if a debt is past its statute involves looking at what type of debt it is and what statutes are applicable,” says Colin Hector, staff attorney at the Federal Trade Commission(FTC). “You need some legal acumen, so you may want to check with legal aid, an attorney, or a state’s attorney general office.”
“I would never pay a debt after the statute of limitations has expired because legally I do not owe the money,” said Ash Exantus, in an article published online at bankrate.com. Ash Exantus is the director of financial education at BankMobile. “You should simply contest the debt if it’s on your credit report and begin building new credit.”
Longevity of Unpaid Debts
Because we know debts don’t possess the same longevity as the pretty, sparkling diamond referenced in this article, American consumers must remain vigilant to educate themselves of the implications of the ramifications of debts, including what the law allows or disallows debt collectors to do while trying to collect unpaid debts.
Debt is Big Business
Consumers in the U.S. had $15.24 trillion dollars in debt as of the third quarter of 2021, the majority of which was home mortgages, at 10.44 trillion U.S. dollars. Student loan debt was the second largest component, totaling 1.58 trillion U.S. dollars, according to Statista.com
Statute of Limitations on Debt
The statute of limitations on debts depends on the state you live in. Each state has its own statute of limitations. How long does it take for a creditor or debt collector to take legal action against you, as stated, depends on the debt. The statute of limitations is called time-barred. When the statute of limitations expires on a debt, the creditor cannot file a lawsuit against the debtor nor use the court system to collect money from a person. Judgments, liens, and wage garnishment are eliminated once the statute of limitations kicks in. It doesn’t matter how a debt collector may try to cajole you into paying off an expired debt, the collector has no power over the statute of limitations.
Don’t misunderstand. A person still owes the unpaid debt. By all means, from a legal technical standpoint, what matters is whether the person decides to pay off the debt or use the legal system to avoid paying the debt under the statute of the limitation act.
Effect on Credit Report
Oh Lord, What Happens With My Credit Report? Should You Still Pay Debts After the Statute Limitations Have Expired?
Unpaid debt, even if the statute of limitations expired on a particular debt in the same state where the debt originated, that same unpaid debt can remain on your credit report for up to 7 years because credit bureaus have their own strict rules pertaining to the length of time that a negative item remains on your report which means, it doesn’t matter if the debt legally expires under state rules the unpaid debts remains negative on your credit report.
“If you don’t make payments on your debt, it can still affect your credit for up to seven years regardless of when the statute ends,” says Katie Ross, education and development manager for American Consumer Credit Counseling, in a statement made to bankrate.com. “A big hit like this will affect your ability to qualify for personal loans, mortgages, and credit cards.”
Here is a link to all 50 states that explain how many years it takes for a debt to expire under the statute of limitations:https://www.credit.com/debt/statutes-of-limitations/
How Does Debt Collection Work in the USA?
Debt collection is the process of pursuing debt payments owed by individuals or businesses. An organization that specializes in debt collection is known as a collection agency or debt collector. The Federal Trade Commission(FTC), enforces the Fair Debt Collection Practices Act (FDCPA). This law greenlights debt collectors to collect debts that haven’t been paid to creditors. The initial phases of the debt collection recovery process usually take place between 30 and 90 days after a payment’s due date has passed and the delinquent payment wasn’t paid. A debtor will probably start receiving calls or notices from the creditor, yet the situation will escalate the heat if the creditor is unable to coax the debtor into making payment on a delinquent account.
“Later, often around 180 days after the original due date of the payment, the creditor might sell the debt to a collection agency,” Michael Micheletti, explained. Micheletti is the Senior Director of Corporate Communications and Public Relations at Freedom Financial Network.
Micheletti further said, “This step indicates that the creditor has decided to give up on obtaining payment on its own, and selling the debt to a collection agency is a way to minimize the creditor’s loss.”
How Much Time Does the Law Allow Collectors to Legally Pursue Old Debts?
The answer to this question depends on the state of whether debt collectors may still pursue you after the statute of limitations has ended on the debt in question.
“In some states, a debt collector is not allowed to try and collect on the debt if the debt has gone past the time limit for the state’s statute of limitations. In others, even though a debt collector can’t sue, they can still work to collect on the debt indefinitely,” said Michael Micheletti.
Finance experts have argued that if a consumer is sued over a debt that’s outside of the statute of limitations, you should either hire an attorney or represent yourself pro-se, then appear in court and bring proof showing the debt is too old to collect. Make sure not to miss your court date because you feel you cannot be legally forced to pay an old debt; the reason it is necessary to show up in court and fight the case, a judge may tilt the scales in the debt collector’s favor and grant the collector a default judgment.
Can Consumers Stop Debt Collectors From Contacting Them?
To answer the aforementioned question, the answer is yes. If debt collectors are yapping at your heels so hot until you’re weary of constant contact, first, mail a straight-to-the-point letter to the collection agency and politely ask them to stop contacting you. Make sure to send the letter certified mail with a return receipt to have a record showing that the collector received your “don’t contact letter” and be sure to keep a copy for yourself. Once the collection agency gets your letter, the agent(s) at this point are only allowed to contact you to confirm they will cease contacting you in the future or to tell you they plan to file a lawsuit. If you’re represented by an attorney, tell the collector they must communicate with your attorney, not you.
List of Debts Covered Under FDCPA Law?
It is equally important to know what kind of unpaid debts are covered under the Fair Debt Collection Practices Act(FDCPA).
They are the following:
- Credit Cards
- Auto Loans
- Medical Bills
- Student Loans and other household debts are covered under the FDCPA.
Interesting to note is the fact that business debts are not covered under FDCPA.
In NewsBlaze’s next series, senior reporter Clarence Walker Jr. will focus on other kinds of debts like oral debt, written debt, open-ended debt, etc. He can be reached at [email protected] or contact the editor of NewsBlaze. Quotes mentioned in the article came from Nerdwallet, Bankrate, and the Federal Government webpage.