What should you do with your old debt? There is no short answer to this question. You have to understand some important things related to paying off an old debt.
When is your debt no longer collectible?
According to the Fair Credit Reporting Act (FCRA), past due credit card bill, payday loan, car loan, or any kind of personal loan debt, will stay on your credit report for 7 years. The creditors or lenders have to sue the debtor within this period.
However, according to the state laws, a debtor can defend the lawsuit for an old debt based on the “Statute of Limitations”.
However, it varies from state to state; in some states, it usually expires within 3 - 6 years range and in some states, the range is for 7 years.
Remember, the SOL can extend for a long time depending on the type of your debts.
Thus, you have to research your state's statute of limitations before dealing with an old debt.
Because the SOL doesn’t stop some debt collectors from knocking you to get their money back.
A collection agency can attempt to collect a debt even after 7 years.
Your debt has been sold to them, they will try to get the money, even after a decade later.
If a debt collector contacts you for an old debt, and you acknowledge the debt, then the SOL will start again and you have to pay off the debt.
Thus, to acknowledge an old debt, you have to be very cautious.
There are many other factors you have to understand before paying off an old debt.
Here you go:
Important things to remember before paying off your old debt in collection
1. Find out to which collection agency you owe?
Since past debts stay on the credit report for a longer time (7 years), they affect the credit score negatively.
Thus, cleaning the credit report from past unpaid debts can be a good step to rebuild a credit score.
However, to do so, you have to track down your old debt, which is not an easy task, especially if your debts are old and have been sold multiple times to the collection agencies.
To track your old debts follow these tips:
- You need to contact your creditors first
You should try to reach out to the original creditors to know which collection agency bought the debts. - Check out your credit report
Your debts can be sold to multiple collection agencies. You should review your credit report to see whether or not the name of the collection agency is listed. You can get the contact information of the collection agencies as well. - Look up your debts for free
The Global Debt Registry has formulated a central repository for bad debts.
However, the work is still in its early phase, but you can get contact information of a collection agency and sample letters to verify your debt from their website, DebtLookUp.com.
They will not charge a fee for using the sample letters.
2. Your debt may not go away even after 7 years
As per the law, after seven years, your unpaid debts along with other negative items will go away from your credit report.
Sometimes, the seven-year mark doesn’t remove the debt, particularly if the debt is unpaid.
Remember, in many states, the unpaid debt doesn’t disappear from the credit report.
Sometimes, you are still liable for the unpaid debts, which is no longer listed on your credit report.
Creditors, lenders, and debt collectors can contact you for the money using the proper legal channels.
They can call you, send letters, and garnish your wages if the court has given permission, and even sue you for the debt if your state’s statute of limitations for that debt is more than seven years.
Thus you shouldn’t ignore your old debts always.
3. Don’t start paying an old debt all of a sudden
If you have just received a letter or call from a debt collector asking you to pay a debt, which is decades old, then you shouldn’t agree on the collector’s word to pay the amount.
Sometimes, your affirmative answer on the old debt, that you can’t even remember,can create more problems for you.
How?
As mentioned, sometimes, making payments on an old debt, which is in the collection, may create more problem because the SOL of your state administers how long a collector can sue you for that old debt.
If you start making payments on the “time-barred” debt (A debt, which is outside the SOL), then the SOL will start again for your debt and the time period will extend and you can be sued by the collector.
Thus, before saying anything to the collector who has contacted you recently, check out your credit report once to know the age of your debt.
Also, check the SOL period of the debt that your state follows.
4. Ask the debt collector to validate the debt
Your debt can be sold to the collection agencies multiple time as I said before, but the debt collector should contact you by sending you a letter, which is called debt validation letter, to claim the money from you.
If you get simply a call from a debt collector, don’t believe on the claim, ask the agency to send the debt validation letter first.
Don’t accept the debt and disclose your bank details over the phone.
Ask the collector to validate your debt in writing and provide the documents that prove that you actually owe the debt.
Most of the time, the collections fail to validate the debt and you don’t have to pay a penny.
They have to stop attempt to collect the debt from you and also remove the listing from your credit report.
5. Respond to a debt validation letter properly to challenge the validity of the debt
According to the FDCPA (Fair Debt Collection Practices Act), a debtor can challenge the validity of a debt. If you believe that the debt doesn’t belong to you, then you can challenge its validity by sending a debt validation letter to the collectors.
In this letter, you need to inform the collector that the debt they are talking about is not yours.
So, you can request them to verify the debt to know whether or not the debt is yours and you are liable to pay it.
6. Use a proper debt validation sample letter
You should send the debt validation letter from a registered email. You will get many sample debt validation letters from the Internet.
Oak view Law group also provides sample debt validation letter. You can use it to request your debt collector to verify your debt.
Lastly, if you can acknowledge the debt that hasn’t passed the statues yet, then you need to pay off the debt.
You can go for a settlement by offering a lump sum payment. Make sure that the debt has been paid and your credit report has been updated.
If you can’t afford the amount, then negotiate with the collection agency by stating your financial hardship to get a payment agreement for the debt.
You can also seek help from a professional debt settlement company to settle your debt.
