How to Not Let Debt Ghost Haunt You Forever

Wednesday, July 18, 2012, 2:00 AM | 1 Comment

When debt gets to be too old, it becomes a ghost. Don’t let it haunt you for the rest of your life. Depending on what state you live in, the statute of limitations (SOL) is between 3 to 10 years except Kentucky where it’s 15 years. When SOL expires on your debt, don’t let the collection agency haunt you forever.

The credit you get and the debt you pay have to be written out and signed by both parties. Verbal and promissory notes have different statute of limitations. Check with your state.

The best thing to do is to write the collector a letter stating you actually know the law and you are not as dumb as they think you are. Tell them SOL has expired on your debt if indeed it has.

Not repaying debt is unethical but not necessarily illegal…

If you care one iota about your ethical and moral financial life, especially your credit history, you will not let SOL expire on your debt by paying the full amount before it does expire.

Leaving aside that you were ethically and morally responsible for paying off your debt, you are not legally obligated for the SOL expired debt.

Depending on the credit card agreement, SOL may start ticking the first time you fail to make payments on your account or the credit card company sends you a letter demanding the full amount.

In any case, it’s your moral obligation to start paying off debt before SOL expires.

However, to be fair, there may be times that you just cannot repay a single dime on your debt because of a variety of reasons – unemployment, no savings, no one else gives you more credit, other extreme hardships.

In a case like that, you have no choice but to let SOL expire on your debt in your state.

What to do when SOL expires on your debt…

Once you know that SOL has expired on your debt in your state, don’t let the collection agency pressure you in repaying it.

Once you start repaying, the SOL expiration date expires meaning SOL gets a fresh start and then you are obligated to repay. The collection agency can then take you to court if you are still unable to repay after the first payment.

To be more specific, in many states, making a small payment on an SOL expired debt will restart the statute of limitations and allow a creditor to take you to court. That can lead to trashed credit and wage garnishment.

So don’t let SOL expiration date refresh by paying even $1. Legally then you are obligated to repay the whole amount.

What’s in it for collection agencies?…

The creditor knows that SOL has expired on debt. The collector buys what is known as out-of-statute debt from the creditor for pennies on the dollar.

It may be credit card or cell phone or any other form of debt. It is then up to the collector how nasty they play the game with you as the debtor and what kind of pressure they can exert on you.

The collectors, to their benefit of course, will never tell you the SOL has expired on the debt and that you are not legally obligated to repay. And why should they?

You and you alone are responsible for your finances. You and you alone are responsible for knowing your rights.

Lately, collectors partner with banks…

This is a recently developed new twist. What the collectors do is partner with banks to issue the debtor with new credit cards to pay off the already expired SOL debt.

Of course it is sneaky method by the collectors but perfectly legal. Let’s suppose you snap up the card, you might not realize you are also agreeing – wholeheartedly I might add but not knowingly – to pay the old debt.

You will find out that old debt has been added to the card’s balance. Media reported at one time that Monterey County Bank (in California) paid $3 million settlement. The bank neither admitted nor denied the wrong doing.

In that case, FDIC made wake up call to the bank and accused it of helping a debt collector revived expired debts with knowingly deceptive credit card offers.

Collection efforts on SOL expired debt are on the rise…

Some experts suggest that arguably the economy is improving. Borrowers seek fresh start. Collectors offer fresh baits.

If you are careful, you will not take the bait. Tell the collector in writing to stop contacting you.

Collector calls you for debt belonging to someone else…

Old debts are often poorly documented. Therefore, the collector might contact the wrong person. Even when they are told the debt belongs to someone else, it will not stop them from suing you.

Send the collector a certified letter saying you don’t owe the debt and to stop contacting you. Request post office for receipt. Keep it in a safe place.

Even then if the collector files a lawsuit, answer it. Don’t ignore it. You have to prove in court it’s not your debt.

Help is available if you dare to ask for…

The National Association of Consumer Advocates can help you find an attorney but you have to pay for the services even though you may be completely innocent. (There goes innocent till proven guilty scenario.)

How best to protect yourself…

The first step you can take is to monitor your credit reports to make sure collectors don’t post old SOL expired debts there. Get your annual credit report now.

File complaints against debt collectors if they contact you about SOL expired debt by calling 877-382-4357 or visiting the FTC website.

You can also contact your state attorney general’s office.

Check Statute of Limitations (SOL) expiration period in your state.

In a Nutshell
Collectors and banks know the financial system of the land. They know the hooks and nooks to squeeze every penny from you on an old debt that has expired its statute of limitations.

Know your rights. Call the state you live in what its SOL expiration period is so you can be prepared for all the pressure the collector might exert on you.

Once you know this information, send it to the collector in writing and keep a copy in your archive.

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