Debt Collection: Is There a Statute of Limitations?

Feb 05, 2024 By Susan Kelly

Despite your best efforts, you will probably have to deal with a debt collector at some point in your life. Dealing with debt collectors is stressful, especially if they call you at home or interrupt your family's significant occasions. If you fall behind on a loan, you must know your rights and theirs. Outstanding debt may be forgiven if enough time has passed.

Debts do not miraculously disappear if you choose to disregard them. Creditors may stop trying to be paid from you after a period, but they can always start harassing you again.

How Does The Debt Collection Process Work?

After a payment's due date has passed and no payment has been made, the debt is considered overdue, and the collection procedure can officially commence. Creditors may initiate contact with consumers through letters or phone calls, but if they are unsuccessful in resolving the issue, they may resort to more severe measures.

Michael Micheletti, CEO of Freedom Financial Network, notes that "later, frequently around 180 days beyond the initial due date of the payment," the creditor may transfer the debt to a collections agency.

The consumer should expect to hear from the debt collector soon. Neither the debt nor the payment has changed, but the party authorized to collect it has shifted from the original creditor to the debt collector.

What Is the Statute of Limitations on Debt?

Debt collectors can keep trying to get their money from you if they follow the law, limiting what they can do and for how long. In the absence of payment or settlement, discharge in bankruptcy, or cancellation of the obligation, the creditor may continue to pursue you for the unpaid remainder of the debt.

You may get phone calls or letters as part of the collection process. The debt collector might disclose the debt to credit reporting agencies and potentially file a lawsuit to recover the outstanding payment.

Limits on Credit Reporting

Debt collectors are authorized to notify the credit reporting agencies to recover outstanding balances. The collection account will be visible to everyone who pulls your credit report.

Fortunately, the law restricts how long a wrong account, like a debt collection, maybe on your credit report. Credit bureaus are only allowed to disclose delinquencies for a maximum of seven years from the original delinquency date. After that time, even if you haven't paid the bill, it should be removed from your credit report.

Legal Time Limits for Debt Suits

Depending on the circumstances, creditors or debt collectors may file a lawsuit against you for unpaid debts. However, debt becomes uncollectible when a predetermined period has passed.

If your credit card company goes to court over a past-due balance, you can argue that the statute of limitations has run out. 4 Maybe that's why debt collectors resort to violence if they can't get their hands on the money they're due.

Creditors and collectors can still try to get their money back from you by using other methods, such as reporting the debt to credit bureaus, as long as they do so within the time restriction for credit reporting.

Should You Consolidate Debt?

Even though a customer's debt has been turned over to a collection agency, they still have choices for making payments. You might start by contacting the creditor or collection agency directly to negotiate a more reasonable repayment plan or reduced balance. However, if that doesn't sit well with you, a debt consolidation loan may be another choice.

Micheletti notes that personal loans often have cheaper interest rates than credit cards. Customers might combine their high-interest credit card debt into one low-rate personal loan. A consumer who chooses this course of action must use every penny of the loan's revenues toward settling existing obligations.

The Conclusion

It is not in your best advantage to ignore a debt just because you are no longer legally responsible for it. Even though debt collectors can't sue you, they still have a certain amount of time to try to get their money from you.

They are permitted to make collection efforts until they get paid in full or an acceptable compromise is reached. You should know that whenever you start making payments again, the statute of limitations begins to run from the beginning. Before beginning payments, be sure you have the funds available to pay the debt in full or can reach an agreement with the collector.

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