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What to do when an old debt resurfaces.

You receive a call from a collection agency on a debt that has been written off or perhaps the statute of limitations on collecting the debt has expired. Do you know what your rights are? Do you know that trying to make it good can harm you? Read on for some noteworthy advise on how to deal with this situation.

The statute of limitations is the amount of time a creditor can sue over an old debt. Also in some states there are laws that prohibit creditors from suing once a debt is more than four years old. So time can be on your side regarding old debts.

It used to be that once the debt was written off or the statute of limitations reached, you were free and clear of this debt. Today, however, collecting on old debts is a rapidly expanding industry. Aggressive companies can buy charged-off credit card accounts from the original lenders for pennies on the dollar. Then, they use credit scoring and other new technologies to identify which debtors are most likely to pay. The players in this “junk debt� market range from fly-by-night outfits to well-established companies funded by Wall Street investors.

Consumer attorneys say the explosive growth of this industry has led to widespread violations of the federal Fair Credit Reporting Act and the Fair Debt Collection Practices Act.

Among the worst practices attorneys have seen:

  • Suing or threatening to sue over debts even though the statute of limitations has long expired.


  • Illegally “re-agingâ€? debts on credit reports. The collectors tell credit bureaus that an old debt is, in fact, a new one. The goal: To extend the seven-year limit on reporting negative items and put more pressure on the consumer.


  • Promising to delete a negative mark from the consumer’s credit report in exchange for a token payment. Not only does the collector fail to follow through, but the payment can revive the statute of limitations and lead to a lawsuit. Even if the collector does back off, the unpaid debt could be sold to another company that might renew collection activity.


  • Bait-and-switch credit cards. Some credit card companies have offered borrowers low-rate credit cards and then tacked old, charged-off debts—often purchased from other lenders—onto the balance. The card issuers typically insist they disclosed that the old debts would come with the cards, but the borrowers say no such disclosure was made.


  • Verbally abusing and harassing consumers. Many have reported being cursed, berated and called repeatedly despite requests to stop—all violations of federal laws.


  • Sometimes, it’s smarter just to hang up. Consumer advocates say the verbal abuse as well as the numerous calls is exactly the kind of behavior Congress and state lawmakers were trying to prevent when they put curbs on collection behaviors such as statutes of limitations, the seven-year credit reporting limit and prohibitions against abusive collection practices.

    Some consumers will try to do something about the debt or continue to talk with the collection agency about the debt, however; this can make a bad situation worse.

    The smallest payment can revive the statute of limitations in some states, leading to more aggressive collections and lawsuits. Even acknowledging that the debt is yours can restart the clock in some jurisdictions.

    Paying off can hurt your credit score. Paying an old debt potentially can wreak havoc on a consumer’s credit score. Such a payment can update a delinquency so that it looks more recent and takes a heavier toll on a credit score.

    Paying the debt is also no guarantee that the nightmare will stop. The collector may decide that if you’re willing to pay at all, you could be made to pay more. Settling a debt for a smaller amount than the collectors says you owe could result in another agency trying to collect the unpaid portion.

    Or the collector might inform the Internal Revenue Service (IRS) that you’ve received “income� in the form of forgiven debt.

    Even if you manage to acquire written promises from the collector that none of the above will happen, you would have to be willing to go to court if the agency reneged. Then your have the possibility of facing an unsympathetic judge or one who doesn’t know much about collections law.

    If you’re being contacted about an old debt, here’s what consumer attorneys advise:

    • Know the statute of limitations. If you racked up a debt in another state, you might want to check the statute of limitations there as well. But generally, it’s the statute of your current state that applies. If the statute has expired, the collection agencies’ legal remedies are limited.


    • Know your rights. Credit and debt collections can be an extremely complicated area of the law. If the amounts at stake are considerable or the level of harassment unbearable, consider contacting an attorney. The National Association of Consumer Advocates can provide referrals.


    • Consider ignoring the call. If the statute of limitations has expired, you do not have to discuss the issue. There’s little to gain and a lot to lose if you keep talking. You could inadvertently extend the statute of limitations or find yourself roped into a repayment agreement that might not be in your best interest. Remember the debt collector doesn’t have any obligation to tell you your rights. He is going to do everything possible to get the debt collected.


    • Write them. If ignoring them isn’t working, consider writing a letter demanding the agency stop contacting you. Send it certified mail, return receipt requested. Federal law requires them to comply with your request. Make sure in the letter you specifically say that you aren’t acknowledging you owe the debt.


    • Upon review of your credit you may have realized that a company you worked for did not send you that last paycheck. Per state laws this company would then give the money to the state. Do a search for your unclaimed money with CashUnclaimed.com. It is quick and easy and you may be richer for having done the search.

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