Important Things You Must Know About A Time-Barred Debt
Although harassment from collection agencies can be frightening, there are well-established limits for collecting unpaid debts. Consumer protection laws govern the extent to which collectors can pursue you for a time-barred debt, depending on where you live.
Are you wondering when debt becomes time-barred? Read on to learn about your rights and understand when the statute of limitations runs out on financing that you haven’t repaid.
What Does Being Barred Mean?
Time-barred in the context of debt is another way of saying that the statute of limitations has run out on collecting the money you owe. In other words, the outstanding debt is listed as uncollectible by the creditor.
These limitations are set on a state-by-state basis. For example, credit card balances are time-barred by most statutes after three to ten years. If balances are still unpaid after this period passes, the risk of creditors taking legal action against you diminishes.
However, it doesn’t mean that you don’t owe the money. Collectors may, and often do, contact you to collect this debt. If one calls or writes to you, you’ll have 30-days to deal with their demand.
When Does A Debt Become Time-Barred?
Each state establishes a statute of limitations that governs the length of time a collector can sue you for unpaid account balances.
The prescriptive period is different depending on the type of debt balance you owe. Installment loan arrears are typically time-barred after three-to-six years, although some states extend this clock. If you live in Louisiana, Iowa, Kentucky, Louisiana, Missouri, Rhode Island, or Wyoming, the statute of limitations on loans is ten years (as of 2019).
You’ll need to know the statute of limitations in your state of residence to respond effectively to any creditor action taken against you. You can find out this information by contacting your State Attorney General’s office.
You can also consult with a lawyer or visit your local legal clinic. If you have the grounds to prove that the outstanding balance is time-barred, you can block any attempt to secure a judgment against you.
Can You Be Sued for Debt That’s Time-Barred?
If the statute of limitations has passed, you have federal protection against being sued for a time-barred debt. The Fair Debt Collection Practices Act (FDCPA) governs the activities of third-party collectors. The rules apply to all personal arrears, such as credit cards, auto loans, medical bills, and mortgages.
The FDCPA also applies rules of behavior to the third-party collection agencies, such as the hours during which they can call you and where they can contact you. Moreover, the act also prohibits the use of unfair or entrapment practices.
Despite the FDCPA, third-party agencies may still try to sue you. If you receive a summons, you’ll need to be proactive. If you can prove to the court that you’re being sued for an arrear that’s past its prescriptive period, you can stop the legal action. If you ignore the summons, the collector might succeed in obtaining a default judgment against you, resulting in a bank levy or wage garnishment.
If You Have Time-Barred Debt, Are You Free Of Collectors?
The meaning of time-barred debt suggests that collection agencies should stay away. However, it doesn’t guarantee they won’t contact you. You might still receive notices and phone calls.
If you’re not sure when your collection period has expired, you should ask the collector when your balance originated and the date of your last payment. The statute of limitations begins from the date of your last payment.
If the collector is unwilling to provide you this information, follow up with a letter. Once you send it, agencies will need to stop contacting you. Be careful of how you interact with the collector. You can unintentionally restart the clock by making a payment.
How Does Time-Barred Debt Impact Your Credit?
As discussed, federal law prevents a collector from suing you for balances that fall beyond the statute of limitations. However, it can still negatively impact your credit score.
To prevent outstanding accounts from damaging your score, do the following:
- Request a copy of your credit report
- Check for accounts that are past the statute of limitations
- If you find any, contact the creditor right away
- Write a detailed letter, include your state’s statute of limitations
- Demand that they remove the arrear from your report
- If you don’t succeed with the creditor, contact the credit bureau directly
- Identity the balance that’s beyond the limitations and ask the bureaus to intervene with the creditor
The Bottom Line
Time-barred debt doesn’t necessarily mean an end to third-party bill collectors. When a certain length of time has passed since your last payment, creditors may mark the arrear as uncollectible.
Still, this doesn’t mean that they won’t hire lawyers or a collection agency to pursue the debt. How you respond makes all the difference. Moreover, you must know what to do if collectors come after you.