Can Creditors Collect on a Canceled Consumer Debt?
- State debt collection laws bar a creditor from collecting old debt after the statute of limitations runs out. Statutes of limitations on debt collection range from two to 15 years. However, the average statute of limitations on debt collection is six years. The clock starts ticking on debt from the date of last activity or the date when the creditor discharges or writes off the debt at a significant loss.
- Although a creditor can no longer bring legal proceedings against a debtor after the statute of limitations on a canceled or expired consumer debt expires, the creditor can still try collecting the canceled debt outside of court. The creditor must act in accordance with the Fair Debt Collection Practices Act, but can issue demand letters and phone communication requesting immediate payment for the past-due amount.
- A debtor is under no legal obligation to repay a canceled or expired debt. Under the Fair Debt Collection Practices Act, a debtor can instruct a creditor to cease all communication regarding a canceled debt. BCSAlliance.com warns debtors not to admit ownership of a canceled debt or agree to pay the debt, or the statute of limitations might reset. Always send a certified letter, return receipt requested, telling creditors not to contact you about canceled debt unless communication is to confirm that all future contact will cease.
- Creditors can continue reporting expired debt to the three major credit bureaus -- TransUnion, Experian and Equifax -- up to seven years later. Statute of limitations laws are separate from credit reporting periods, which differ for credit debt and judgment debt. A judgment can remain on a consumer credit report for at least seven years, but, in some cases, for 21 years or more, depending on state laws.
