Worried an Old Debt Could Force You Into Bankruptcy? Here’s What You Should Know

Everyone makes mistakes, especially when they are young and learning about the world. Chances are if you are like most people there are several things you would go back and change from your young adulthood. One of the most common mistakes young adults make involves money management and credit.

A great example of how money mistakes can haunt you occurs when an old debt seems to follow you around for years. Debts have a statute of limitations, but that statute is controlled by a variety of factors. If you want to avoid being haunted by a debt years after it was originally created, there are several things you need to know.

Statute of Limitations vs. Credit Reporting Time Limit

First, understand that the statute of limitations on debts is different than the credit reporting time limit. They both create limits that affect your credit report, but they are triggered by different factors. The credit reporting time limit is the amount of time a credit bureau can post delinquent debts to your credit report. Usually it’s seven years, but there are some types of debt that can remain on your report for longer. The Fair Credit Reporting Act determines how long a debt can remain on your credit and has no effect on a debt’s statute of limitations for collection.

The statute of limitations is the period of time you can legally be forced to pay a debt and it is determined by the lat date of activity on a debt. The total length of time varies from state to state. Look up your state’s statute of limitations here.

What You Can Do If the Statute of Limitations Has Passed

Essentially, you have no control over the credit report time limit. Once you take an action that will be recorded on your credit report, you must live with it until the time expires. You do however have control over a debts statute of limitations.

A debt’s last date of activity is listed on your credit report. This could be the last date the account was used, the last payment made, the last time you acknowledged the debt, etc. Once the appropriate amount of time has passed from this date, you can no longer be forced to pay it. Keep in mind debt collectors will not share this information with you and they can choose to continue collection efforts on the debt in hopes you will take action and restart the statute of limitations clock. Their attempts to collect will not hold up in court if enough time has passed, but they are hoping you are unaware of their limits.

Before making a payment on any old debt, make sure you know if the statute of limitations has passed. By making a payment, making a promise to pay, agreeing to a payment agreement, or using the account, it restarts the statute of limitations and you will be responsible for the entire debt against.

What the Statute of Limitations Does Not Do

Keep in mind the statute of limitations does not change the fact you owe the debt. Nothing is erased and you still owe the money to the original lender. The debt can still be included on your credit report and the lender can still file a lawsuit against you to recover the debt (they will lose). However, the threat of a lawsuit is often enough to trigger some people to make a full or partial payment, opening the door for a legitimate legal claim to be made against you. Despite your responsibility for the debt, you can no longer be forced to pay it once the statute of limitations has passed.

If you are confused about how the statute of limitations affects your financial situation or you are unsure if you should agree to pay a debt, we can help. Contact the Law Offices of Robert M. Geller at 813.254.5696 to discuss your financial situation.