Time-Barred Debts: When Collectors Cannot Sue You for Unpaid Debts

After a period of time, creditors lose the right to sue you for unpaid debts.

If you have old, unpaid debts, you may be safe from a lawsuit to collect the debt. This is because a creditor or debt collector has a limited number of years to sue you for an unpaid debt. This time period is set by state law and is called the statute of limitations.

The time allowed varies greatly from state to state and for different kinds of debts. Under certain circumstances, this time period can be restarted. So be very careful when talking to debt collectors about old debts. If you say the wrong thing, you could extend the time the creditor has to sue you for the debt.

When Are Debts Time-Barred?

To determine if your debt is time-barred – that is, too old for a creditor or collector to sue you for it – you must do some legwork.

Determine what kind of debt it is. Is the debt based on a written contract, oral contract, or a promissory note (a written promise to pay money to somebody)? Is it a credit account? If so, is it open-end or closed-end credit?

Determine when the debt was due. This is when the statute of limitations starts ticking. For open-end accounts, the statute of limitations starts to run when the first payment was due.

Find the applicable statute of limitations. Statutes of limitations are set by state law. They usually range from about three to ten years and depend on the type of debt. To find out the statute of limitations for debts in your state, you can:

• Consult a lawyer.
• Check out your state laws, either by going to a local law library, contacting your state consumer protection agency (visit Consumer Action ( www.consumeraction.gov) for a list of consumer protection agencies), or doing some research on the Internet. You can find most state laws online through Nolo (www.nolo.com/statute) or Findlaw (www.findlaw.com).
• Consult self-help legal manuals. For example, Solve Your Money Troubles: Get Debt Collectors Off Your Back & Regain Financial Freedom, by Robin Leonard and John Lamb (Nolo) lists the statute of limitations for various debts for each state.

Using the Statute of Limitations

If the creditor has waited too long to sue you, you must raise this as a defense in the papers you file in response to the lawsuit. If you can prove that the debt is older than the statute of limitations, then you will not have to pay it. If the creditor or debt collector knows that the statute of limitations has expired on the debt and still sues you, it may have violated the federal Fair Debt Collection Practices Act (FDCPA).

However, a statute of limitations does not eliminate the debt – it merely limits the judicial remedies available to the creditor or collection agency after a certain period of time. A debt collector may still seek voluntary payment of an old debt even though the law cannot force you to pay it.

Some Debt Collectors Try to Enforce Time-Barred Debts

In recent years, aggressive debt collectors have begun trying to enforce debts that are barred by the statute of limitations. They buy these debts from original creditors for pennies on the dollar, so they make a tidy profit when they collect anything.

Some of these debt buyers use aggressive tactics when they try to collect on time-barred debts. According to media reports, they abuse and harass debtors and try to trick debtors into reaffirming debts so that the statute of limitations begins anew.

What Should You Do if a Collector Tries to Collect a Time-Barred Debt?

The most important thing is not to say or do anything (whether on the phone or in a letter) that in any way acknowledges that you owe the debt. Acknowledging the debt or making even a token payment can extend or revive the statute of limitations in some states.

Be Careful Not to Waive, Extend, or Revive the Statute of Limitations

If you claim that the statute of limitations prevents a collector from suing you for a debt, the collector might argue that you have waived, extended, or revived the statute of limitations in your earlier dealings.

Waiving the Statute of Limitations

If you waive the statute of limitations on a debt, it means you give up your right to assert it as a defense later on. The law makes it very difficult for a consumer to waive the statute of limitations by accident. A court will uphold a waiver only if you understood what you were doing when you agreed to waive the statute of limitations for your debt. In certain circumstances, even then a waiver may be unenforceable. If you think you may have waived the statute of limitations, you should still raise it as a defense (and force the creditor to demonstrate that you waived it).

Extending the Statute of Limitations

Extending the statute is often called “tolling.” Tolling or extending the statute temporarily stops the clock for a particular reason, such as the collector agreeing to extend your time to pay.

For example, Emily owes the Farmer’s Market $345. The statute of limitations for this type of debt in her state is six years. Normally the statute would begin to run when Emily stopped paying the debt, but Farmer’s gave her an additional six months to pay (and therefore tolled or extended the statute of limitations for six months). After six months, Emily still cannot pay the debt. The six-year statute of limitations begins to run at this point.

Reviving the Statute of Limitations

Reviving a statute of limitations means that the entire time period begins again. Depending on your state, this can happen if you make a partial payment on a debt or otherwise acknowledge that you owe a debt that you haven’t been paying. In some states, partial payment will only “toll” the statute rather than revive it.

For example, Ethan owes Memorial Hospital $1,000. The statute of limitations for medical debts in his state is four years. He stopped making payments on the debt in 2002. The four-year statute began to run at this point. In 2005, Ethan made a $300 payment and then stopped making payments again. In Ethan’s state, his partial payment of $300 revived the statute of limitations. The hospital now has four years from the date of his $300 payment to sue Ethan for the remainder of the debt.

A new promise to pay a debt may also revive the statute of limitations in some circumstances. In most states, an oral promise can revive a statute of limitations, although in a few states the promise must be in writing.

For a state-by-state chart on statutes of limitations for various debts, get Solve Your Money Troubles: Get Debt Collectors Off Your Back & Regain Financial Freedom, by Robin Leonard and John Lamb (Nolo). This book contains everything you need to get out of debt and repair your credit.

What percentage of my wages can creditors take?

QUESTION:

I owe substantial balances to several credit card companies. One company has sued me already. If it wins, how much of my take-home pay can it get? And what about the other companies? I'm worried that I won't be left with enough money to pay for things like rent, food, and gas.

ANSWER:

The total amount your creditors can take from your wages is 25% of your net pay. That limit applies whether you have one creditor or many. Remember, however, that each creditor must have a judgment against you to be able to garnish your wages. If more than one creditor has a judgment, the first one would garnish your wages, get the 25% until the judgment is paid, and then cancel the garnishment. Then the second creditor would garnish 25% of your wages until that judgment was paid. And so on.

Before you lose a bunch of lawsuits, however, you might want to get some help dealing with your creditors. To find credit and debt counselors in your area, go to the website of the U.S. Trustee, www.usdoj.gov/ust, and select "Credit Counseling and Debtor Education." You'll find a list, by location, of counseling agencies that have been approved by the federal government to advise debtors who are considering filing for bankruptcy. Although you might not be in that position, these agencies have been examined and approved by the government, which makes it less likely that you'll run into some of the scam artists that all too often prey on people who are deeply in debt.

Dealing With Collection Agencies FAQ

What you need to know about dealing with debt collectors.

Should I deal with debt collectors or try to avoid them?

Unless you're "judgment-proof" (that is, broke) or plan to file for bankruptcy, most credit counselors believe that you shouldn't ignore your debt or try to hide from a debt collector. Generally, the longer you put off resolving the issue, the worse the situation and consequences will become. Whether you negotiate directly with the collector or obtain a lawyer's assistance, most counselors feel it is almost always best to talk with the collector and try to work out a mutually satisfactory arrangement.

Collection agencies have been calling me all hours of the day and night. How can I get them to stop contacting me?

It's against federal law for a bill collector who works for a collection agency (as opposed to working in the collections department of the creditor itself) to call you at an unreasonable time. Before 8 a.m. or after 9 p.m. are considered unreasonable times, but other hours may be unreasonable, too, such as daytime hours for a person who works nights.

The federal Fair Debt Collection Practices Act (FDCPA, 15 U.S.C. § 1692 and following) bars collectors from:

• harassing you
• using abusive language
• using false or misleading statements
• adding unauthorized charges, and
• many other practices.

Under the FDCPA, you can demand that the collection agency stop contacting you (except to tell you that collection efforts have ended or that the creditor or collection agency will sue you). Make your request in writing.

The collections department of a local merchant is harassing me. Can I do anything about it?

Unfortunately, the federal Fair Debt Collection Practices Act (FDCPA) does not apply to the collection department of a creditor (it only applies to outside collection agencies). However, many states have fair debt collection laws that do cover creditors' collection departments.

Check with your state consumer protection office to see if your state law applies to in-house collectors and to find out what types of collection practices it prohibits.

A bill collector insisted that I wire the money I owe through Western Union. Am I required to do so?

No. Many collectors, especially when a debt is more than 90 days past due, will suggest that you make an "urgency payment," by doing things like:

• sending money by express or overnight mail, which will add at least $10 to your bill
• wiring money through Western Union's Quick Collect or American Express's Moneygram, another waste of money, or
• putting your payment on a credit card -- you'll never get out of debt if you do this.

Mailing your payment with a first-class stamp is fine. Or, pay by debit card or check card -- but first ask if the creditor will charge a fee. If you send your payment through the mail, you may receive further phone calls from the collector until the creditor receives and processes your payment.

Can a collection agency add interest to my debt?

Yes. The Fair Debt Collection Practices Act (FDCPA) allows a collector to add interest if your original agreement calls for the addition of interest during collection proceedings or the addition of such interest is allowed under state law. Every state authorizes the collection of interest, although the maximum amount allowed varies.

A collection agency sued me and won. What collection measures can it now take against me?

Before obtaining a court judgment, a bill collector generally has only one way of getting paid: asking. This is done with calls and letters.

However, once the collector (or creditor) sues you and obtains a court judgment, the law allows it to take further steps to collect the debt. The collector can:

• garnish up to 25% of your net wages
• seize bank or other deposit accounts, and
• record a lien against real property -- which will have to be paid when you sell or refinance your property.

Even if you're not currently working or have no property, the judgment won't disappear. Depending on the state, court judgments can last up to 20 years. In many states, it can be renewed for years beyond that.