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Facts You Should Know About Old Debt and Zombie Collections

No matter if you want to clean up your credit report or have an old zombie account coming back from the dead to haunt you, it’s important to understand your rights. Laura answers a question about old debt, explains the statute of limitations, gives advice for dealing with collectors, and offers four ways to handle accounts in collection.

By
Laura Adams, MBA,
March 1, 2017
Episode #487

Page 1 of 3

Zombie Debt—Facts You Should Know About Old Accounts in CollectionsA member of Laura’s Dominate Your Dollars private Facebook group named Kimberley P. says:

I’ve recently been contacted by a collection agency about a debt on a car that I had voluntarily repossessed in 2007. They say I owe $11,000 and are offering settlement terms. Considering this debt is about 10 years old and is no longer on my credit report, what should I do?

If you’ve ever experienced a rough patch in your financial life and couldn’t pay a debt, you know how terrible it is. Getting calls from collectors and seeing your credit scores take a dive can be an extremely stressful situation.

No matter if you want to clean up your credit report or are like Kimberley and have an old account coming back from the dead to haunt you, known as zombie debt, it’s important to understand your rights.

In this article, I’ll explain the protections you get from the statute of limitations on debt, how to stay safe from zombie debt collectors, and offer advice for Kimberley with 4 ways to handle old debt.

See also: 5 Lesser-Known Reasons Why Your Credit Score Drops

Old Debt and Your Credit Report

Kimberley mentioned that her old debt has fallen off her credit report. How debt affects your credit history is important, but is unrelated to when you can and can’t be sued for a debt, which I’ll cover in a moment. These two different time limits are often confused, so I’ll clarify them here.

First, let’s review how long debt stays on your credit report. The major credit bureaus (Experian, Equifax, and TransUnion) can legally keep accounts in your credit file for a certain amount of time.

Accounts with positive information remain in your credit file for 10 years. In contrast, those with any negative information—such as late payments and accounts in collections—stick around for 7 years (except some types of bankruptcies, which remain for up to 10 years).

A common misconception about old debt is that if you pay it in full or settle for less, it instantly disappears from your credit report and boosts your credit scores. No matter if you pay a portion or the full amount of an old debt, it doesn’t go away. Every old debt stays on your credit report until 7 years after the date it first became delinquent.

A common misconception about old debt is that if you pay it in full or settle for less, it instantly disappears from your credit report and boosts your credit scores. No matter if you pay a portion or the full amount of an old debt, it doesn’t go away.

Having old accounts with negative information certainly hurts your credit scores; however, they become less damaging as they age. In addition, if you make payments on credit accounts on time each month, that fresh, positive data is a powerful way to repair your credit.

Also see: Best Tips to Improve Your Credit Score

How the Statute of Limitations on Debt Protects You

Now that you understand that old debt typically stays on your credit reports for 7 years, let’s talk about a different time limit, which is the statute of limitations.

The statute of limitations is a law that sets a deadline for when a creditor can sue you for an unpaid debt. It varies depending on the state where you live, the type of debt, and your agreement with the creditor.

For instance, the statute of limitations on credit card debt in some states is three years, but in others it can go up to 10 years. And some debts, such as income taxes and federal student loans don’t have a statute of limitations because you’re never off the hook for them.

Even if the deadline for a creditor to sue you has passed, that doesn’t mean you’ll never hear from them again. They can continue to try to collect overdue money from you indefinitely.

The statute of limitations doesn’t wipe away a debt because you still owe the money. Creditors are within their rights to contact you and ask you to pay the debt or offer payment terms, but they can’t sue you.

Even if the deadline for a creditor to sue you has passed, that doesn’t mean you’ll never hear from them again. They can continue to try to collect overdue money from you indefinitely.

However, there are rules that allow the statute of limitations to revive or restart at day one, which is known as re-aging an old debt. And believe me, debt collectors have strategies to trick or persuade you to take certain actions that reset the clock, putting you back at square one, so they’re allowed to sue you for the full amount owed.

For instance, in some states, the statute of limitations clock restarts any time you take an action on an old debt. The action could be something as simple as acknowledging that an old debt is yours, promising to make a payment, agreeing to a payment plan, or making a payment—no matter how small.

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