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How Long Will an Old Debt Follow You?

            Will an old debt you might still owe haunt you forever? No. But you will have to deal with it for several years, even if it is “charged off.” Hopefully the statue of limitations on it expires before the creditor files suit against you.

            This article will discuss the terms, “secured and unsecured debts,” “charge off,” “statue of limitations (SOLS) regarding debts,” “default,” and what to do about an old debt.

  1. What’s the difference between an unsecured and secured debt?

Debts are either unsecured or secured. “Unsecured debts are usually things like credit card bills or other debts you incurred but did not agree to permit the creditor to sell any property of yours in the event you did not pay. “Secured debts” are those debts like a mortgage, where if you do not pay the creditor can sell the property to pay off debt.

  1. What is a charged off debt?

Usually after about 4-6 months of a small or medium sized unsecured debt not being paid, most banks or large companies will “charge off” that debt. Sometimes your credit report describes a debt as being “charged off.” This does not mean you do not owe the debt anymore. It simply means the creditor has decided to not attempt to collect on it anymore, and has taken this debt off of its books as an asset

  1. What is a statute of limitations?

Statutes of limitations (SOLS) are laws every state has which provide the time period for when lawsuits may be filed for that type of claim. Every state has its own SOLS for various claims. For a state guide, visit Bankrate.com. In Virginia, the SOL for written contracts is five (5) years from the date of “default,” and three years from the date of “default” for unsigned or verbal contracts. Virginia Code §8.01-246. For the sale of goods the SOL if four years from the date the cause of action arose, or usually the date you failed to pay for those goods, i.e. the date of “default.” (Remember this is for the sale of goods, not services, such as repairs, consultations, etc.) Virginia Code §8.2-275. This four year SOL for the sale of goods will “trump” the SOL for written contracts, which is often longer, as in Virginia’s 5 year SOL for written contracts. This four year SOL applies to installment agreements for the sale of goods, such as an automobile installments sales contract initiated by the dealer and sold to a bank. “Default” is usually the date when you first missed a payment for the goods or for the services.

  1. What is the statute of limitations for the bank – issued credit card debts?

The applicable SOL for bank-issued credit cards, like the ones you get in the mail and begin using without signing any contract, should be the same SOL as for your state’s SOL for verbal contracts. In Virginia that is three years. Creditors make various arguments to claim this SOL for verbal contracts is NOT applicable to them, and that they are entitled to the SOL for written contracts, so it is best to get legal advice from an attorney in your state who specializes in debt defense if confronted with this issue. Usually the credit card issuer cannot produce the signed written credit card agreement, and furthermore the “Customer Agreement” you received with the credit card is not signed, does not state a specific interest rate and does not meet the definition of written contract under Virginia Law. This I believe in Virginia the SOL in these case credit card lawsuits is three (3) years from the date of default. See Capitol One Bankv. Gregorich, Case No. 07-251-24 SP 25 (11th Jud. Cir., Miami-Dade County, Fla.) (2008) (Applying Va. Law).

IMPORTANT: On any debt, when you make a payment, after having defaulted, or in some states, merely acknowledging the debt is owed after a default, will revive the SOL and the SOL clock restarts from that payment. Typically simply stating that you owe the debt is not enough. There must also be an agreement to pay the remainder of the debt. But don’t risk it, never acknowledge you owe it. If the creditor or a debt collector can talk you into acknowledging the debt and making a payment, the SOL clock for that debt starts all over!

  1. What to do about an old or time barred debt

The answer depends on your goals.

  • You certainly can pay it off if you feel an obligation to do so whether or not the SOL has expired.
  • If you do not want to pay it, recognize that debt collectors have the right to ask you to pay it, and they may try to “shame” you into doing so, however, they cannot advise that your failure to do so will result in a lawsuit, nor actually sue you on a time barred debt because under the Fair Debt Collection Practices Act (FDCPA) such collection efforts are considered by many courts deceptive since the threat of a lawsuit or filing of the lawsuit on such debt implies that the collector might prevail. If in their attempt to “shame” you into paying something they harass you or call you names, this may also be a violation of the FDCPA. If a debt collector takes any of these actions please contact us.
  • Check your credit report since debts older than seven (7) years (from the date first reported to the credit agency, must come off. Make sure the debt collector has not “re-aged” the debt, i.e. re-reported it with a new start date so it stays on longer than 7 years. This would be a violation of the Fair Credit Reporting Act.
  • Send a “cease and desist” written letter, certified mail is best, to the debt collector. If the collector contacts you after receipt you have a claim under the FDCPA. (Find a sample cease and desist letter here).

 

Good luck and contact us if we can help.

John C. Gayle, Jr.
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Consumer Law Pioneer and Co-Author of Virginia's Lemon Law