Fair Debt Collection Practices Act
Debt collectors do a lot of things when trying to recoup money owed: They call you relentlessly, send you all sorts of strongly-worded letters, and even threaten you with lawsuits. But are these threats for real, or are they just empty words? Can creditors really sue you?
Credit card debt has many possible repercussions including costly interest, credit score damage and yes, even a lawsuit. However, what many people do not know and what debt collectors might not tell you is that debt has a statute of limitations, meaning that it is only relevant under the law for a certain period of time. Before the statute of limitations runs out, collectors can successfully sue you for amounts owed. However, once it expires, your debt becomes “time-barred.” This means that debt collectors can still initiate a suit against you, but as long as you make it clear that your debt is older than the statute of limitations, the court will dismiss the suit.
The statute of limitations for debt varies widely by state and ranges from three to 15 years. The clock starts ticking at the time of last payment and resets each time you make a payment. Thus, in making a payment, you effectively re-age your debt. Additionally, signing a document in which you promise to pay the debt or waive the right to stop a collector from suing might also re-age your debt.
On the other hand, it’s important to note that making a payment in no way affects the amount of time negative information about debt stays on your credit report. Defaulting on your credit card debt will stay on your credit report for seven years from the time of first delinquency, no matter what you do in the meantime. This amount of time is completely independent of the statute of limitations.
Still, while you might think it’s wise to pay a small amount in order to get collectors off your back that might not be the case. If you can manage to agree to an affordable payment plan or reach a settlement with your collector, do so, because the sooner you can change the status of your debt to “paid” or “settled” from “not paid,” the less detrimental debt will be to your credit score. However, if these things are unattainable, don’t make the mistake of paying a small amount in good faith. This will only re-age the debt and increase your vulnerability to lawsuit.
After the statute of limitations runs out, collectors efforts might continue, but you cannot be sued successfully as long as you make clear in court that the debt in question is time-barred. Additionally, if debt collectors continue to harass you and threaten lawsuits after your debt becomes time-barred, you can send cease and desist letters to stop them. Often, creditors will abandon collections of their own volition because the complexity of collecting time-barred debt might exceed the benefit.
Understandably, there is a great deal of confusion when it comes to credit card debt and collections. Should we pay what we can when we can? Will a payment reset the amount of time negative information about debt will remain on our credit reports? In order to properly handle credit card debt and protect yourself sufficiently against collection agencies just remember that nothing changes how long negative information stays on your credit report, and if you are going to pay, you must do so in the smartest way possible. Consider avoiding making yourself unnecessarily vulnerable to a lawsuit by being aware of your debt’s statute of limitations and using it as a defense should a collector initiate a suit to recoup time-barred debt. Armed with this knowledge, you will be able to escape debt as quickly and efficiently as possible, hopefully never to experience it again.
Various time frames are important to debt, but one of the most significant is its statute of limitations. This is essentially the time during which debt is relevant under the law. Before the statute of limitations expires, you can be successfully sued for amounts owed. Once it runs out however, suit can be initiated, but it will be thrown out of court if you make it clear that the debt is “time barred,” or older than the statue of limitations.
The age of debt depends on how recently you made a payment towards it. Making a payment re-ages debt, which means the clock for the statute of limitations resets. It is important to note that the statute of limitations has nothing to do with how long negative information remains on your credit report and that making a payment in no way affects this amount of time.
You can find your state’s statute of limitations for debt in the table below. If your outstanding debt is older than your state’s statute of limitations, then the debt is “time-barred” and you have the right to ask the courts to dismiss any suit.
State Statute of Limitations
- Alabama 6 Years
- Alaska 3 Years
- Arizona 6 Years
- Arkansas 5 Years
- California 4 Years
- Colorado 6 Years
- Connecticut 6 Years
- Delaware 6 Years
- District of Columbia 3 Years
- Florida 5 Years
- Georgia 6 Years
- Hawaii 6 Years
- Idaho 5 Years
- Illinois 10 Years
- Indiana 10 Years
- Iowa 10 Years
- Kansas 5 Years
- Kentucky 15 Years
- Louisiana 10 Years
- Maine 6 Years
- Maryland 3 Years
- Massachusetts 6 Years
- Michigan 6 Years
- Minnesota 6 Years
- Mississippi 3 Years
- Missouri 10 Years
- Montana 8 Years
- Nebraska 5 Years
- Nevada 6 Years
- New Hampshire 3 Years
- New Jersey 6 Years
- New Mexico 6 Years
- New York 6 Years
- North Carolina 3 Years
- North Dakota 6 Years
- Ohio 15 Years
- Oklahoma 5 Years
- Oregon 6 Years
- Pennsylvania 4 Years
- Rhode Island 10 Years
- South Carolina 3 Years
- South Dakota 6 Years
- Tennessee 6 Years
- Texas 4 Years
- Utah 6 Years
- Vermont 6 Years
- Virginia 5 Years
- Washington 6 Years
- West Virginia 10 Years
- Wisconsin 6 Years
- Wyoming 10 Years
(The Statutes of Limitations shown in this chart are for written contracts like credit card agreements. Oral contracts may have shorter periods in many states.)
Having your state’s statute of limitations run out does not mean that your creditor no longer has the right to try to collect money owed. However, it does mean that the courts will not be a viable method of doing so, provided that you explicitly notify the judge that your debt is time-barred. Failing to bring this information to the court’s attention could result in the progression of a lawsuit that could have easily been dismissed.
Consider the disclaimer that creditors in New York City are required to include in collection efforts:
“The legal time limit (statute of limitations) for suing you to collect this debt has expired. However, if somebody sues you anyway to try and make you pay this debt, court rules REQUIRE YOU to tell the court that the statute of limitations has expired to prevent the creditor from obtaining judgment.”
Making a payment is not always the only act that can re-age debt (i.e. make the statute of limitations reset) either. According to the New Mexico Attorney General’s handbook, this occurs if you:
- “make any payment of the debt”
- “sign a paper in which you admit that you owe the debt or in which you make a new promise to pay”
- “sign a paper in which you give up (“waive”) your right to stop the debt collector from suing you”
The biggest mistake you can make with a “time-barred” debt is to pay a little bit of money at the wrong time just to stop the calls from collectors. Doing so resets the statute of limitations clock and reopens the possibility of being taken to court. So unless you plan to pay off your debt in full or have reached a settlement, don’t start making small payments in hopes of stopping the calls. Instead, send cease and desist letters to collectors who continue to harass you over time-barred debt.
After a certain point, collectors might abandon efforts to recoup your debt altogether because the complexity of collections outweighs the benefit. However, you may feel the moral obligation to pay the debt when you can afford to do so.
As mentioned earlier, making a payment has no effect on the length of time information about your debt will remain on your credit report. This clock begins as soon as you first become delinquent and nothing you do thereafter affects it. Debt is only removed from your credit report when the requisite amount of time (usually 7 years) has passed, but you could change the status of your debt to “paid” or “settled” by making payment. This is better for your credit score than having your debt classified as “not paid.”
Ultimately, the decision of whether or not to pay is yours alone to make. Be sure you know your statute of limitations, and do not let a creditor threaten you with a lawsuit when your debt is time-barred. If a creditor files a case, you must take action to have the courts throw it out. If you don’t prove that the debt is too old, the creditor will likely win his case.
A creditor may seek to collect an outstanding debt in several ways. For example, the creditor may attempt to collect the debt through direct communications with the debtor, by filing a lawsuit against the debtor, by seeking to take possession of or to sell property securing the debt, or by hiring a debt collection service. Faced with “abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors,” 15 U.S.C. § 1692(a), in 1978, Congress enacted the Fair Debt Collection Practices Act (FDCPA), U.S.C. § 1692 et seq.
The FDCPA provides debtors with a means for challenging payoff demands, and for determining the validity and accuracy of asserted debts. 15 U.S.C. §1692g. Perhaps more importantly, however, the FDCPA establishes ethical guidelines for the collection of consumer debts. It is difficult to argue with the need for such guidelines: the Federal Trade Commission (FTC) provides Congress with an annual report covering FDCPA enforcement activities and summarizing consumer complaints of alleged violations of the FDCPA by debt collectors. The FTC reports that in 2005 there were more than 66,000 complaints. Congress targeted such behavior because it found that “[a]busive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy. ” 15 U.S.C. §1692(a).
Preliminarily, the FDCPA generally applies only to third party debt collectors; the statutory scheme was not intended to cover the conduct of the original creditor. However, some states, such as California, have enacted consumer protection statutes that provide broader coverage than the FDCPA, and they may include the conduct of the original creditor within their sweep. The FDCPA permits such state laws. See 15 U.S.C. § 1692n.
“The FDCPA broadly prohibits a debt collector from using ‘any false, deceptive, or misleading representation or means in connection with the collection of any debt.’ 15 U.S.C. § 1692e.” Dunlap v. Credit Protection Ass’n, L.P., 419 F.3d 1011, 1012 (9th Cir. 2005). The statute enumerates several examples of such practices, 15 U.S.C. § 1692e, as well as several examples of unfair practices, 15 U.S.C. § 1692f. The FDCPA also provides, for example, that debt collectors may not harass or annoy debtors, may not threaten debtors with arrest, and may not threaten legal action unless litigation actually is being contemplated. See 15 U.S.C. §1692d. Additionally, in their first communication with the consumer, debt collectors are required “to notify debtors about their ability to challenge the validity of a debt and to provide other basic information..” Foti v. NCO Financial Systems, Inc., 424 F.Supp.2d 643, 653 (S.D.N.Y. 2006) (citing 15 U.S.C. §1692g). This includes informing the debtor of his or her right to ask the collection agency to “validate” the debt.
With respect to its ethical guidelines, and in addition to the mandatory disclosures a debtor collector must make in its initial communication with the consumer, the FDCPA provides, for example, enumerates the conduct of debt collectors when communicating with third parties in an effort to locate the debtor, and prohibits third-party debt collectors from contacting a debtor directly if they know the debtor is represented by counsel, see 15 U.S.C. § 1692b. The FDCPA also provides that debt collectors may not contact debtors before 8:00 a.m. or after 9:00 p.m., but it does not prohibit debt collectors from contacting debtors on holidays or weekends unless they know or have reason to know that doing so would be “inconvenient” to the debtor. The FDCPA even gives debtors the right to demand that the third-party debt collector terminate all further communications, but the demand must be in writing. See 15 U.S.C. § 1692c.
Finally, in addition to administrative enforcement, see 15 U.S.C. § 1692l, the FDCPA provides for private rights of action against debt collectors, and permits debtors to recover actual damages, statutory damages, and attorneys’ fees and costs for violations of its terms. See 15 U.S.C. § 1692k.