Collection laws: Should you pay off a time-barred debt?

Debt collectors have certain number of years (known as statute of limitations period) to sue you in order to collect on a debt. After that, your unpaid debts become ‘time-barred’ - means that a debt collector cannot sue you for the debt (though you still owe).

Since the statute of limitations varies from state to state and under certain circumstances, the debt clock can be reset. Therefore, as per the Federal Trade Commission (FTC), a debtor should be aware of his/her rights under the Fair Debt Collection Practices Act (FDCPA) if a collection agency contacts you about an old debt.

When a debt becomes too old to collect?

Technically, state law determines the period of the statute of limitations. The debt clock usually starts ticking whenever you fail to make a payment and stops once the state specified statute of limitations period for the certain debt ends. In most states, the statute of limitations period tends to range between 3-6 years. To know about the statute of limitations on different kinds of debt in your state, visit our page on SOL laws.

Should you pay on a ‘time-barred’ debt?

It depends completely on you. You have certain options and each of those has specific consequences. So before you go further with an option, talk to your lawyer.

Option 1: Pay nothing on the debt

Though the collector may not sue to collect on the debt, you still owe it. The collector can, however, continue with his collection activities unless you send a cease and desist letter demanding an immediate cease on all communication. However, not paying a debt may lower your credit score and make it harder to obtain credit in future.

Option 2: Make partial payment on the debt

In many states, if you make a partial payment on the debt or just a promise to repay, you (unknowingly) reset the debt clock and a new statute of limitations period begins. This also means that the collector gets the right to sue you now and charge additional fees and interest.

Option 3: Repay the debt

Even if it’s a time-barred debt, you may repay it to avoid a hit on your credit score. Some collectors may agree to receive less than what is owed and close the account. However, make sure every understanding is documented in separate clause and you get released from any future obligation.

What if you get sued for a time-barred debt?

Defend yourself in court: If you are sure that the debt has passed the SOL, respond to the lawsuit. You can also talk to your attorney to strategically file an answer. If the judge concludes that the debt is time-barred, the lawsuit will be dismissed.

Perform your FDCPA rights: It’s illegal for a collection agency to sue you on a time-barred debt. You can report the same by filing a complaint either with the FTC or with your state attorney general.

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