all about How To : Facts You Should Know About Old Debt and Zombie Collections

A member of Laura’s Dominate Your Dollars private Facebook group named Kimberley P. says:

I’ve recently been contacted by a collection agency about a debt on a car that I had voluntarily repossessed in 2007. They say I owe $11,000 and are offering settlement terms. Considering this debt is about 10 years old and is no longer on my credit report, what should I do?

If you’ve ever experienced a rough patch in your financial life and couldn’t pay a debt, you know how terrible it is. Getting calls from collectors and seeing your credit scores take a dive can be an extremely stressful situation.

No matter if you want to clean up your credit report or are like Kimberley and have an old account coming back from the dead to haunt you, known as zombie debt, it’s important to understand your rights.

In this article, I’ll explain the protections you get from the statute of limitations on debt, how to stay safe from zombie debt collectors, and offer advice for Kimberley with 4 ways to handle old debt.

Old Debt and Your Credit Report

Kimberley mentioned that her old debt has fallen off her credit report. How debt affects your credit history is important, but is unrelated to when you can and can’t be sued for a debt, which I’ll cover in a moment. These two different time limits are often confused, so I’ll clarify them here.

First, let’s review how long debt stays on your credit report. The major credit bureaus (Experian, Equifax, and TransUnion) can legally keep accounts in your credit file for a certain amount of time.

Accounts with positive information remain in your credit file for 10 years. In contrast, those with any negative information—such as late payments and accounts in collections—stick around for 7 years (except some types of bankruptcies, which remain for up to 10 years).

A common misconception about old debt is that if you pay it in full or settle for less, it instantly disappears from your credit report and boosts your credit scores. No matter if you pay a portion or the full amount of an old debt, it doesn’t go away. Every old debt stays on your credit report until 7 years after the date it first became delinquent.

Having old accounts with negative information certainly hurts your credit scores; however, they become less damaging as they age. In addition, if you make payments on credit accounts on time each month, that fresh, positive data is a powerful way to repair your credit.

Also see: Best Tips to Improve Your Credit Score

How the Statute of Limitations on Debt Protects You

Now that you understand that old debt typically stays on your credit reports for 7 years, let’s talk about a different time limit, which is the statute of limitations.

The statute of limitations is a law that sets a deadline for when a creditor can sue you for an unpaid debt. It varies depending on the state where you live, the type of debt, and your agreement with the creditor.

For instance, the statute of limitations on credit card debt in some states is three years, but in others it can go up to 10 years. And some debts, such as income taxes and federal student loans don’t have a statute of limitations because you’re never off the hook for them.

Even if the deadline for a creditor to sue you has passed, that doesn’t mean you’ll never hear from them again. They can continue to try to collect overdue money from you indefinitely.

The statute of limitations doesn’t wipe away a debt because you still owe the money. Creditors are within their rights to contact you and ask you to pay the debt or offer payment terms, but they can’t sue you.

Even if the deadline for a creditor to sue you has passed, that doesn’t mean you’ll never hear from them again. They can continue to try to collect overdue money from you indefinitely.

However, there are rules that allow the statute of limitations to revive or restart at day one, which is known as re-aging an old debt. And believe me, debt collectors have strategies to trick or persuade you to take certain actions that reset the clock, putting you back at square one, so they’re allowed to sue you for the full amount owed.

For instance, in some states, the statute of limitations clock restarts any time you take an action on an old debt. The action could be something as simple as acknowledging that an old debt is yours, promising to make a payment, agreeing to a payment plan, or making a payment—no matter how small.

How to Stay Safe from Zombie Debt Collectors

We don’t know if the statute of limitations has expired on Kimberley’s debt. But it’s likely that a new collector purchased it for pennies on the dollar and is trying to get some amount from her to make a profit.

To stay safe from potentially harmful zombie debt collectors, you need to be aware of common tactics:

Verbally harass you. This is illegal according to the federal Fair Debt Collection Practices Act.
Misrepresenting their company. Collectors can’t tell you that they are an attorney or a litigation firm when they aren’t.
Threaten a lawsuit. This is illegal if your debt’s statute of limitations is expired, but it can scare people into paying.
Begin a lawsuit. Collectors may try to sue you even when the statute of limitations has expired. If you receive a summons, don’t ignore it because you have a limited amount of time to respond. If you don’t respond in time you may forfeit your right to fight the lawsuit, using the statute of limitations as your defense.
Get you to pay for someone else’s debt. In general, you’re not responsible for debt that’s not in your name. The only exception may be the debt of a deceased spouse if you live in a community property state. If a creditor tricks you into believing that you owe a debt that isn’t yours, making a payment could be construed as an admission that the debt is yours.
Promise to stop contacting you in exchange for a small payment. As I mentioned, that can be a setup to revive your debt and reset the clock on the statute of limitations so they can sue you for the full amount.
Promise to keep the debt off your credit report. As I mentioned, past due debt stays on your credit reports for 7 years, even if you settle or pay it off.

Also see: The Truth About Debt and Death

So, if a collector contacts you by phone, ask for the company name and address and say you will only communicate through the mail, and then hang up. Don’t admit that you owe the debt or engage in conversation or debate about the issue.

Speaking with a collector is risky because you could accidentally say something that gives them a leg up or resets the statute of limitations on your debt.

Speaking with a collector is risky because you could accidentally say something that gives them a leg up or resets the statute of limitations on your debt. All communication should be done through snail mail so you have hard copies.

You have the right to request verification of the debt by sending a certified letter back to the creditor within 35 days after receiving their first letter. They must prove that you owe the debt and they they’re authorized to collect it.

Quick and dirty tip: Download the Credit Score Survival Kit for a free step-by-step video tutorial on how to check your credit report, correct errors, and raise your credit scores.

4 Ways to Handle Old Debt

As you can see, the law regarding past due accounts is tricky. It’s easy to make a wrong move that could end up hurting your finances. I recommend weighing your options carefully and consulting with an attorney.

If you’re like Kimberley and have an old debt, here are 4 ways to handle it:

1. Pay off the full amount of debt owed.

Even if the statute of limitations has expired on an old debt, you may still decide to pay the full amount. For many, honoring debt is a moral obligation, even after struggling through a financial hardship.

If the debt hasn’t already fallen off your credit report, paying it changes the account status from “unpaid” to “paid,” which improves your credit.

2. Begin making payments on your debt.

If your financial situation has improved and you want to start chipping away on an old debt, remember that in some states it could restart a new statute of limitations period, giving you less legal protection.

Again, if it’s still on your credit report, having the account show as “paid” gives your credit a chance to improve.

3. Settle your debt for less than owed.

If you want to pay some amount of your debt, most collectors are very willing to settle for a partial payment. For instance, Kimberley owes $11,000 and could offer to pay $5,000 to release her from any further obligation.

Always get a settlement offer in writing first, otherwise your payment could be considered a partial payment, reviving the statute of limitations in some states.

When you settle a debt that’s still on your credit report the status changes to “settled,” for the remainder of its 7-year history. This indicates that the debt was not paid in full, as originally agreed, and will have a negative effect on your credit scores. That’s better for your credit than leaving it unpaid, but is not as good as paying it in full.

4. Pay nothing on your debt.

As I previously mentioned, if you don’t pay a debt, you still owe it even after the statute of limitations expires or it falls off your credit reports. Creditors can try to contact you and collect money indefinitely, even if they can’t sue you.

So, my advice for Kimberley is to get clear about how she feels about the debt. Even though she gave her car back to the lender, the $11,000 is likely a deficiency balance they couldn’t cover after selling the vehicle.

If she wants to pay some amount to never hear from creditors again, then I’d move in the direction of a settlement. But if she can’t afford a settlement, thinks the debt is an error, or isn’t bothered by getting contacted from creditors then she could pay nothing.

I can’t make the decision for you, because everyone’s life and financial situation is different. You’re the only one who really knows if you truly can or can’t afford to pay a legitimate debt.

See also: 5 Ways to Get a Loan With Bad Credit

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all about How To

Rabu, 01 Maret 2017

Facts You Should Know About Old Debt and Zombie Collections