What is the statute of limitations?
The statute of limitations is the length of time a debt collector can take legal action for a defaulted debt that has not been repaid. Legal action is generally the last course of action a debt collector wants to take, especially if there is open communication. There is a likelihood of the payment going outside the legal route, and debt collectors rarely want to pursue the legal way.
The debt collectors choose to go down the legal road when there is no other remedy remaining to collect the outstanding debt. And the legal action can vary state by state. For example, Texas has a four-year statute of limitations and is also one of the friendliest debtor states. Other states have seven-years, and so on.
The statute of limitations begins from the Date of First Delinquency (DOFD).
What restarts the clock on the statute of limitations?
Whenever a consumer is making a payment; it can either be a full or partial payment. For example, a consumer has Midland funding debt and a T-mobile account. Midland funding owns it, and it has been two years since the DOFD. The consumer decides to take care of this debt and sets up a payment plan, which can be $50 a month. This starts the statute of limitations. Because if the consumer misses a payment right after they started making payments, the DOFD will change to a more recent date. Technically, once the payment is made, the clock starts over.
Moreover, even indicating that the consumer will be making the payment starts the statute of limitations all over. For example, the consumer is conversing with the debt collector and promises to pay the debt. This will restart the limitations.
On the other hand, disputing the account does not start the limitations all over again. Suppose the consumer is not admitting to the debt and demanding investigations to check if the debt is legitimately theirs. Was the debt acquired properly? Is the information compliant with the Fair Credit Reporting Act (FCRA)? The consumer has a right to investigate the item before making any payment plan.
Hence, disputing the debt does not start the statute of limitations all over again.
What are time-barred debts?
Time-barred debts are debts that are outside the statute of limitations. A debt collector cannot sue a consumer with debts outside of the statute of limitations. But they can try and continue to collect as long as they like.
Therefore, reporting or legality of when a debt collector can sue is based on the limitations, but the attempt to collect on the debt via letters and calls can go on indefinitely. No law states that the debt collector has to call it quits at some point. As long as the debt collector wants to pursue collection efforts, they are entitled to do so.
Usually, most debt collectors choose not to pursue collections after a certain period, although they can mostly because it is not going to be the best use of their energy and time, as a new debtor is born every day.
Debts are continuously accruing; consumer debts are constantly accruing; hence there is more opportunity. There are not enough debt collectors in the world to pursue aged debts, older than seven years or so. The likelihood of collecting such debts is slim to none.
Can a debt collector report once the debt is deleted off a credit report?
A deletion does not constitute that the debt becomes uncollectible; the debt collector is entitled to pursue collection. So if a consumer picks up a payment plan after the debt is deleted off the report, the statute of limitations starts again.
It depends if the debt collector can report on various aspects. If the debt is deleted and then reinserted, the consumer has to be notified in writing. A loophole that debt collectors choose to use is to sell off the debt to a different agency, as the likelihood of payment after deletion is slim to none.
It becomes a little tricky as the debt collector would have to change the account number, which means something fraudulent is happening and will not hold in court. Hence, if a debt is deleted, the consumer is under no obligation to pay it off.
Do old debts hurt a consumer’s credit report?
Having old debt on a report hurts a consumer’s credit score. However, Fair Isaac Corporation (FICO) scoring does not consider the balance of the debt or the consumer’s type of behavior. A fewer number of collections on a report boosts the FICO score and if the account is reporting correctly and is compliant to the FCRA and the Fair Debt Collection Practices Act (FDCPA).