Mix Old Debts & Good Faith Payments For Bad Results

mummy case wikimedia

Old debts don’t live forever.

The shell of the debt may hang around, like this mummy, but inside the shell, the debt is dead.

But just like a bad mummy movie, old, dead debt can be brought back to life.

All it takes is an attempt on your part to be honorable , or an attempt by a debt collector to con you, and you can give otherwise dead debt a new life.

Because, in many states, the statute of limitations is reset when you make a payment on a debt that is otherwise non collectible.

How old debts get new life

The debt collector on the phone has a tough job:  he has to convince you to write a check  on a debt you haven’t been paying.

Suing you takes a long time and costs money.

So it’s cheaper if he can persuade you to mail or wire him some money.

Often, the collector tries to frighten or shame you into paying.  He doesn’t care that you probably aren’t paying because the money isn’t really available under today’s circumstances.  That’s your problem.  After all, he’ll tell you, this is your debt and your responsibility.

Often as part of the conversation about settlement or payment over time, the collector asks that you make a small payment, to show your good faith.

Which of us doesn’t want to act in good faith?

It’s a great pitch.

Only, that payment may revive the debt and endow it with a brand new set of years in which the debt can be collected.

Pretty expensive way to show good faith, huh?

Limits on lawsuits

The statute of limitations describes the period in which a creditor can sue you to collect a debt.

The debt doesn’t go away after the statute of limitations.  But the right of the creditor to use the courts and law enforcement to make you pay dies at the end of the statute of limitations.

Each state has their own statute of limitations.  Courts go different ways on the issue of whether the applicable statute of limitations is the one where the borrower lives, or the one in the state whose law governs the contract.

Dealing with debt collectors

There’s a brisk trade, these days, in old, uncollected debt.  So if you’ve had financial challenges, there’s a good chance you’ll encounter a collector trying to coax a check from you on really old debt.

What do you do?

First, do you recognize the debt as one of yours? 

If you’re uncertain, invoke your right to have the collector validate the debt, in writing.

Second, read any collection letter carefully.

Debt collectors now have to tell you if the debt is too old to sue on.  Keep reading, because that statement is seldom the first thing the collector writes.

Third, decide whether paying an unenforceable debt is the best use of money.

 If the debt is old and stale, chances are your budget is, or has been, tight.  Unless you have comfortable savings and a program for saving for old age, paying debt that is unenforceable doesn’t benefit you as much as saving the money.

Credit reports and old debt

The threat that looms for many consumers is the effect of non payment on your credit report.

Debts can only properly be reported on your credit report for 7 years from the last activity on the debt.  That last activity is the same “activity” from which the statute of limitations is counted.

Chances are that a debt no longer enforceable by suit is at or near its limit for reporting on your credit report.

Unless you are rolling in dough, let sleeping debts lie.

Image courtesy of Wikimedia.

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