This time ABC News correspondent Elisabeth Leamy attempts to tackle the issue of old debts and a concept called “debt re-aging”. Is she spot on or should she have done more research?
First, what is “debt re-aging”? The “re-aging” part of the name is with regard to the statute of limitations, but I’m going to have to go into a little more legalese on this one, so please bear with me.
There are two kinds of injuries that are recognized by law: civil and criminal injuries. Now I’m not referring to someone physically injuring you. You see, with a credit card, you agree to pay off any balance or at least adhere to a minimum payment. Fail to do that, and the contract you signed provides for an immediate remedy: late fees, raising your interest rate, and so on.
When you fail to adhere to the terms of a contract, this creates an injury under the law. Civil injuries or civil wrongs are called “torts”. Their criminal counterparts are “crimes”. Are there crimes and torts that overlap? Yes, but that is beyond the scope of this article. Anyway in failing to adhere to the terms of a contract, the injury or tort is called “breach of contract”. The contract for a credit card typically stipulates immediate remedies of that injury.
Now what keeps credit card companies from just suing people who make slight violations to their contract? Well, in short, the law is what prevents it. First the parties to a contract do have an obligation to attempt to remedy a civil injury outside court. It is only when those attempts fail that the injured party may seek redress through the Court by filing a lawsuit.
But the law doesn’t allow credit card companies to do that until after they have “charged off” the account. This cannot occur until the account is at least 180 days past due.
Now every state has a set of statutes that specify a limit on how long a person has from the day of the onset of the injury to seek remedy through the Court. These laws are called statutes of limitations. In the case of credit card companies, the clock starts the day after the first due date at which you failed to pay. Making payments in the interim only resets the clock. This is what is known as “re-aging” the debt. Any payment you make on a debt resets the clock.
How long that clock lasts depends on the State in which you reside.
So what if a debt collector calls about a debt that is possibly beyond the statute of limitations? Here is where the advice of Elisabeth Leamy’s article goes south:
If a collector doesn’t tell you that a particular debt is time-barred — but you think that it might be — ask the collector if the debt is beyond the statute of limitations. If the collector answers your question, the law requires that his answer be truthful. Some collectors may decline to answer, however.
First, I want you to remember this simple rule: anything you say to a debt collector, in writing or over the phone, can and will be used against you in a Court of Law if the debt were to result in a lawsuit. This sounds like the Miranda rule, and it applies perfectly well to debt collections.
Never talk to a debt collector over the phone if you suspect the debt they are attempting to collect may be beyond the time limit. If you do, anything you say may be interpreted as acknowledging the debt, in which case you have just given them full legal power to collect by resetting the clock. So repeat after me: never talk to a debt collector over the phone if you suspect the debt they are attempting to collect may be beyond the statutory time limit. While it might sound smart to ask if the debt is beyond the statute of limitations – and Elisabeth is right in that the debt collector must answer truthfully – the debt collector may respond by saying that they do not know, which is a perfectly legitimate and legally permissible response because the person to whom you are speaking may not know.
But one thing to bear in mind is that many collections agents are skilled over the phone. They know how to take and keep control of a conversation, and they will say anything (legally permissible or not) to keep that control and corner you. During a conversation with a debt collector, you may reset the clock on the debt and not know it. Don’t give them that chance by avoiding the phone call at all.
When the debt collector calls, say this simple phrase and hang up: “Put the details in writing and send it to me in the mail.”
From the first phone call, the debt collector has 5 days to put the information about the debt in writing and mail it to you. If they do not do this, they cannot collect on the debt. From the day you receive that information, you have 30 days to exercise a right known as “debt validation”. I have written on this previously. In the debt validation letter, ask them to provide information on when the account went “past due”.
Now do you have an obligation to pay a debt that is beyond the statute of limitations? Morally, I would say yes, as you do owe the debt. Legally, however, you do not, so long as you don’t inadvertently reset the clock on it. And you avoid inadvertently resetting the clock by – say it with me – not talking to the debt collector on the phone.
But what did Elisabeth have to say? She says you have 3 options:
- Pay nothing on the debt
- Make a partial payment on the debt
- Pay off the debt
Well those options are no-brainers, but let’s explore them.
Although the collector may not sue you to collect the debt, you still owe it. The collector can continue to contact you to try to collect, unless you send a letter to the collector demanding that communication stop. Not paying a debt may make it harder, or more expensive, to get credit, insurance, or other services because not paying may lower your credit rating.
Let’s take this last phrase first: not paying the statutorily-expired debt may negatively affect your credit. This is true only if you live in a State with a statute of limitations less than 7 years. After 7 years, this debt will not be on your credit report and thus will not affect your credit score or ability to obtain credit in the future.
But you can forego paying on the debt if you desire, basking in your legal immunity in the process. Just don’t move to a State with a longer statute of limitations or the debt collector may decide to try collecting again (assuming they’re not otherwise-legally barred from doing so).
In some states, if you pay any amount on a time-barred debt or even promise to pay, the debt is ‘revived.’ This means the clock resets and a new statute of limitations period begins. It also often means the collector can sue you to collect the full amount of the debt, which may include additional interest and fees.
All I can say about this paragraph is that Elisabeth is spot-on. And I’d say it’s in most States where making even a partial payment will reset the clock. Do not send a debt collector anything until the debt has been validated and be careful that you do not make any kind of statement that can be interpreted as acknowledging the debt as such a statement may also reset the clock.
Even though the collector may not be able to sue you, you may decide to pay off the debt. Some collectors may be willing to accept less than the amount you owe to settle the debt, either in one large payment or a series of small ones. Make sure you get a signed form or letter from the collector before you make any payment.
This is just common sense. You can certainly pay off any debt you owe and release yourself of any obligation to it, regardless of whether that obligation is legally enforceable. However if you are going to acknowledge the debt, thus resetting the clock, any negotiation should take place in writing. If you do negotiate over the phone, take careful notes and say you want to acknowledge the terms in writing before sending any kind of payment.
So while some of the advice Elisabeth gives in her article is flawed, the information she provides is pretty spot-on.