Old Debts Die Hard: How the Debt Collection Industry Affects You

August 25, 2011

Until the last twenty years or so, most creditors didn't bother trying to collecting on old debts because the payments they received were rarely worth the trouble it took to collect them. Times have changed, however, and collecting on past due accounts is now a robust and highly profitable industry.

For consumers, the rise of the debt collection industry means that that even very old debts can be extremely difficult to leave behind. Even if an original creditor gives up on trying to collect on a debt, it may sell the debt to a collection agency for a fraction of the amount due. For credit card debt, this usually occurs when the debt reaches 180 days past due.

The sale of the debt gives the collection agency a legal right to collect on the account. If that collection agency is also unsuccessful in collecting payment, it may in turn sell the debt to another collection agency at an even bigger discount, and the collection process begins again.

Because collection agencies buy debts at a steep discount -- usually pennies on the dollar or less -- they will often bargain with consumers to settle the credit card debt for less than the full amount due. The more the consumer agrees to pay, the more the collection agency profits.

But in some cases, attempting to settle a debt for less than the amount due can backfire. Collection agencies may take your willingness to pay at all as an indication that you can be convinced to pay more. And even if you do settle the debt with one agency, there is still a chance that another agency may try to collect on the remainder of the debt at some point down the road. Worst of all, as discussed below, making a partial payment on an old debt can sometimes reset the statute of limitations on the creditors' right to collect.

The Effects of Old Debt on Your Credit Report

Overdue debts reflect negatively on your credit report, and they are not removed simply when the debt is sold to a collection agency. A collection account, even though it is with a different company, is treated as a continuation of the original debt.

Each creditor or collection agency that takes possession of your debt probably will report to at least one of the three major credit bureaus, so your activity or inactivity on a collection account will continue to appear on your credit report after the debt changes hands.

Old debts remain on your credit report for seven years, measured from the original delinquency date after which your account was never again up to date. For instance, if you missed a payment in April and caught up again in May, but then fell behind again in June and never caught up on your payments again, the seven year period would be measured from June and not April. Therefore, old debts often remain on your credit report much longer than seven years after you first miss a payment.

This is a source of confusion for many people, and is not the same as the statute of limitations that controls a creditor's right to sue for repayment of a debt.

The Statute of Limitations on Credit Card Debt

In Ohio, the statute of limitations on credit card debt is six years, so a creditor generally may not sue you to collect on a debt that has been delinquent for six years or more. However, many credit card agreements contain provisions that state that the agreement will be governed by the laws of the state where the credit card issuer is located. If this is the case, a creditor may still be able to sue you even if the debt is more than six years past due.

Creditors can also get around the statute of limitations with a practice known as "re-aging" of old debts. This process can reset the statute of limitations when a consumer acknowledges an old debt or makes a payment, even a small one, on a delinquent account. Therefore, it is best to seek legal advice right away before communicating in any way with a collection agency that has tried to contact you about an old or unfamiliar debt.

Article provided by Harold Jarnicki & Associates
Visit us at www.haroldjarnickiandassociates.com