Collection on Account

I see five issues your child and new in-law face:

• Ownership of the collection account

• Statute of limitations

• Spousal liability of pre-marital debt

• Credit scores

• Resolving the debt

Collection on Account

Accounts receivable are assets. When the old hospital wound-down its operations or was purchased by the other organization its accounts receivables were either included in the assets purchased or were sold to collection agencies. It is inconceivable that the board of directors or trustees of the old hospital would have ignored its collection accounts.

Your in-law should review the credit report mentioned to learn which organization claims to own the collection account. If and when this organization, most likely a collection agent, contacts your in-law to collect the account, your in-law should validate the debt. Given the demise of the hospital that provided the service, the collection agent may have purchased a bare account. If so, the debt cannot be validated. If the collection agent cannot validate the debt, it may not collect the debt or report it to the credit reporting agencies (i.e., Equifax, Experian, and TransUnion).

Statute of Limitations

All states have a body of statutes in their codes of law called, "Limitations of Actions," commonly referred to as the statutes of limitations. The idea behind these laws is that we as a society have decided that we don't want old debts hanging around forever -- we want people and businesses to be able to move on with their lives without worrying about being sued.

The length of time a creditor has to file a lawsuit depends on the defendant's state of residence and the type of debt. For example, many states allow longer for creditors to file suit to collect on closed-ended consumer loans than on credit card debts. Most states give credit card issuers three to four years to file suit after default, but some states allow as many as 10 years. Check out the Bills.com Collection Laws and Statute of Limitations page to learn about the statute of limitations for each state.

The site I just mentioned has more information about statutes of limitations and a list of limitations by state. If a creditor files a lawsuit after the allowed time, the court will usually throw the case out and not allow the creditor to file suit again (called dismissed with prejudice).

However, the defendant must raise the issue of expired statute of limitations in a written response to the lawsuit, or else the court will not know that the statute of limitations has expired. Although the periods vary from state to state, only one (Ohio) is longer than 10 years.

The passing of the SOL does not mean that a creditor cannot file a lawsuit. It means if a lawsuit is filed the defendant has an absolute defense against the lawsuit if defendant raises the defense. Also, keep in mind that the passage of the SOL does not prevent a creditor from trying to collect on the debt in most states. It simply provides defendant an absolute defense in court if the creditor files suit.

One other caveat: The passing of a state's statute of limitations has no relationship to how long a debt can appear on a credit report (more on this later).

Spousal liability of pre-marital debt

Resolving Spouse A's liability for debt incurred by Spouse B can be tricky, especially when the debt is acquired before the marriage. Family law varies tremendously from state to state, and even the community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) vary in their approach to answering the pre-marital debt question.

Generally speaking, in non-community property states Spouse A has no liability for Spouse B's pre-marital debts.

In community property states, it is generally the case that the opposite is true -- Spouse A assumes liability for Spouse B's pre-marital debts. However, as a practical matter, many creditors do not go to the trouble of suing both spouses, (should the debt go unpaid) as doing so tends to complicate the legal process involved in obtaining a judgment.

One important disclaimer: Community property laws are unique to each state -- no two states share the same laws. The discussion above regarding spousal liability is meant to provide general information about community property as a theory. Your state's laws may vary from the general theory. Therefore, it is important to consult with an attorney in your state who can review the details of your situation and give you accurate and precise advice about your rights and liabilities under your state's laws.

Credit scores

Regarding your child's credit score, there is no such thing as a marital credit score. Marrying a person with poor credit (or excellent credit) will have no impact on the other's credit score if the two do not share credit accounts. See the Bills.com resource Credit and Marriage for additional discussion on this subject.

Regarding your in-law, the unpaid debt's appearance on the credit report is almost certainly degrading the credit score. See the Bills.com resource Frequently Asked Questions about Credit to learn more about credit scores and what effects a credit score.

You mentioned the debt is "several" years old, and asked about the appearance of the debt on a credit report in relationship to a state's statute of limitations. Federal law (US Code Title 15, §1681c) controls the behavior of credit reporting agencies. This law is known as the Fair Credit Reporting Act (FCRA). Under FCRA §605 (a) and (b), an account in collection will appear on a consumer's credit report for 7½ years. The clock starts approximately 180 days after the date of first delinquency on the account. To learn when an account will be removed by the credit reporting agencies (TransUnion, Equifax, and Experian and others), add 7½ years to the date of first delinquency. Subsequent activity, such as resolving the debt, is irrelevant to the seven-year rule. However, if the debt is a tax lien, that can appear for seven years from the date of payment. A bankruptcy will appear for ten years from the date of the final order. Delinquent federal student loans can be reported indefinitely, i.e., for as long as they are delinquent.

Just because a debt is removed from a credit report does not mean the statute of limitations for receiving a judgment to collect the debt has passed. Federal credit report laws and a state statute of limitations laws are separate and independent from each other, and one law has no bearing on the other.

Resolving the debt

Your in-law has several options for resolving the debt. See the Bills.com resource What Are My Debt Resolution Options? to learn more about the positives and negatives for each approach. Which is "best" depends on each person's circumstances and goals.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com