Debt Statute of Limitations

Below is basic information on the collections process, responsibility for the debt, and a discussion of whether the statute of limitations on collecting the debt has passed. You mention that the debt was charged off in 2003. However, you do not mention whether you may have used that card in subsequent years or never again. This affects the statute of limitations (SOL). Finally, if you are responsible for the debt, you need to consider your options for resolving the debt.

Collections Process

When a debtor stops paying on a debt, and the number of days since the most recent payment reaches 120 days, the account is no longer considered current, and the creditor is required to "write-off" the debt. Writing-off a debt does not mean the debtor is no longer responsible for the debt, or that collection efforts cease, or that the debt is forgiven. The write-off date has no legal significance, and almost nothing to do with the statute of limitations for debts.

At the write-off point, the creditor will transfer the debt to a late-accounts department, or has the option to either assign or sell the debt to a collection agent. If the debt is assigned to a collection agent the collection agent will attempt to receive payment on the creditor’s behalf. If the collection agent buys the debt, it will do so at a discount from the face value. Typically, collection agents buy debt for 5 to 50 cents on the dollar. However, the collection agent has the right to collect the entire balance due plus interest.

Collection agents can buy a fully documented account, which includes all of the invoices and records of the original creditor’s collection efforts. Or, the collection agent can buy a bare account with little documentation. A fully documented account is worth a lot more than a bare account.

A collection agent may use aggressive tactics to when contacting the debtor. The collection agent may threaten to call the debtor’s employer, file charges with the local sheriff, or other unsavory methods. All of these tactics are illegal under the Fair Debt Collection Practices Act. Review rights consumers have in collections under the Fair Debt Collection Practices Act.

If you chose not to pay the debt, a creditor may receive a judgment from the court. Review Judgment has Been Filed for information on judgments and consequences such as a lien, wage garnishment, or bank levy. Which of these tools the creditor will use depends on the circumstances. See Attorney Collections and Garnishing Wages to learn more background information on wage garnishment.

Disclaiming Responsibility for the Debt

If a collector demands payment of a debt an individual does not owe, or more than they owe, the individual may dispute the debt in writing. The formal terms are "debt verification" or "debt validation." Within five days of first contacting the consumer, debt collectors are required to notify the individual of his or her right to validate the debt. Consumers are required to write to request verification within 30 days of when they are first informed of the debt.

If the debt collector has a bare account, then the collector has no means to validate the debt. Without validation, the account is noncollectible if the debtor asks for the validation and does not receive it. That is why is is wise for a debtor to ask for a debt validation when a debt collector attempt to collect on an old debt — the chances on the debt account still containing the full documentation diminishes with each passing day and with each debt collector who handles the file.

To see a sample debt validation letter, go to the Bills.com debt self-help center.

Statute of Limitations

When a borrower fails to repay a debt, this is considered a breach of contract. A contract can be written or spoken. A breach of contract may give the harmed party a cause of action, which is a legal reason to file a lawsuit against the other party.

A statute of limitations is the time period during which a creditor can take legal action. Each state has defined its own statutes of limitations, and they vary significantly.

For example, in your state, Arizona, creditors have three years to sue a debtor to enforce a debt, while in Rhode Island creditors have 10 years. To learn more about statutes of limitations for the collection of debts, see the Bills.com Collection Laws and Statute of Limitations page to get some basic information about the rights in each state and Arizona Collection Laws to learn about the rules for your state. Debtors should consult with an attorney in their state who has experience in debt law to determine if the statute of limitations for the creditor to sue has expired.

If a state’s statute of limitations for the collection of debts has expired, the likelihood of the creditor attempting to sue the debtor to enforce the debt is much less. The passing of the statute of limitations does not mean that a creditor cannot file a lawsuit. If one is filed the debtor has a defense against the lawsuit.

The statute of limitations begins date of breach, which is usually when the borrower stops making agreed-upon payments. However, a borrower can reset the statute of limitations by paying just a few dollars to the creditor. Also, he passage of the statute of limitations does not forbid a creditor from calling to collect on the debt — it simply provides an absolute defense in court if the creditor files suit.

Debt Resolution

Assuming the debt is validated and the statute of limitations has not passed, there are five options for resolving a debt:

1. Pay the debt outright
2. Debt negotiation and settlement
3. Debt consolidation
4. Bankruptcy
5. Default

Debt negotiation and settlement is the process of negotiating with creditors to either establish a new payment schedule at a reduced interest rate, or a lump sum payment that is significantly lower than the total balance. If the only other option is bankruptcy, creditors are willing to negotiate to ensure that they get something rather than nothing.

Debt consolidation, by contrast, is consolidating debts to reduce high interest rates and pay off delinquent payments with a loan or low-interest credit card. There is no debt balance reduction. The debt is simply rolled into a loan or credit card that has a lower interest rate. It will ultimately save money in the long run but in the beginning, the debtor is still stuck with the same balance.

Bankruptcy is an option for some debtors, but going this route should be taken only with great care and deliberation, and after consulting an attorney in the state where the debtor’s reside.

Finally, a debtor can default — in other words, do nothing. This is the worst option, and makes the debtor a passive observer rather than the person in charge. As discussed above, doing nothing may lead to wage garnishment, additional charges added to your debt, and a reduction in the debtor’s income the debtor cannot control.

To see additional discussion of debt resolution, read What Are My Debt Consolidation Options?

Recommendation

Contact an attorney in Arizona who is experienced in debt law to confirm the exact date the statute of limitations ran out on your debt. The answer to this key question will determine your next course of action and your rights and liabilities.

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

Best,

Bill

Bills.com