How to Avoid Resetting The Clock On Old Debt

Dealing with debt can be stressful, but it’s even worse when creditors or collectors threaten legal action.

Some types of consumer debt have an expiration date known as the statute of limitations. Once the debt “expires,” your creditors can no longer take legal action against you to collect payment.

While paying debts so they don’t negatively affect your credit score is generally in your best interest, you might not want to reset the clock on old debt. If you’re not careful, you could reset the clock and open yourself up to legal action. You may want to avoid taking certain actions — like making a new payment or acknowledging the debt in writing — until the clock runs out or you can pay the debt.

What is the statute of limitations on debt?

The statute of limitations outlines how long a creditor or debt collector can take legal action against you in pursuit of repayment. Once the statute of limitations expires, the debt becomes time-barred.

Although a debt collector can’t take you to court over an expired debt, they can still try to collect on it. They can continue to call you or send letters to get what they’re owed. They can’t use legal means, such as a lawsuit or wage garnishment.

Time-barred debts can also stay on your credit report for up to seven years, hurting your ability to get loans or credit cards in the future. The negative consequences of not paying a debt are often severe, but you may want to be careful handling time-barred debt to make sure you can pay it without legal action being taken against you.

How long is the statute of limitations on debt?

The statute of limitations depends on the type of debt and where you live but is typically three to six years. Some types of debt, like federal student loans, don’t have a statute of limitations, and others may have a longer timeline.

“The statute of limitations in some states are six or 10 years after the last payment was made on a defaulted account,” said Michelle Creeden, Attorney and Practice Administrator at The Law Office of Fox, Kohler & Associates, PLLC.

What resets the clock on old debt?

The statute of limitations protects consumers from being endlessly harassed by creditors about old debts. However, it’s possible to accidentally reset the clock on an old debt — and enable your creditors to once again pursue that debt using legal avenues.

Even if your debt was only a few months away from being time-barred, these actions can reset the clock, making it longer before the debt is passed the statute of limitations:

• Making a payment: Making a payment on an old debt, whether in full or part, revives it, essentially restarting the clock on old debt. By making a payment, you’re acknowledging that you do owe that debt. Once you’ve made a single payment, your creditors can attempt to take you to court. They may also be able to sue you for the full amount owed plus interest and fees.
• Agreeing to pay in writing: If you acknowledge that the debt is yours and agree to pay, the statute of limitations on your debt will start over. “It used to be that even admitting something was your debt could be construed as you recognizing and agreeing to be collected upon,” Creeden said. “Now, short of an agreement in writing to pay the debt or making a voluntary payment, the clock doesn’t just restart.”
• Making a charge: Certain types of revolving debts, like credit cards or lines of credit, can stay open for years. Even a single charge could restart the timeline.
• Having a discharge in bankruptcy revoked: When you discharge debt through bankruptcy without objections from creditors, they can no longer collect on the debt through legal means. However, the discharge can be revoked in some cases if the court finds that your debt was discharged fraudulently.
• Negotiating or settling the debt: Negotiating, agreeing to a payment plan or settling a debt could reduce how much you owe but also reset the clock.

Remember that when the statute of limitations on debt restarts, it starts from the beginning. So if your statute of limitations is six years and you make a charge to the account after five years of being dormant, it will be an additional six years before the statute of limitations runs out.

What should you do about time-barred debts?

If you have an old debt or a debt nearing the end of the statute of limitations, you have a few choices on what to do with it.

Repay the debt

If you can repay the full amount of debt, that’s most likely the best option. You’ll be able to stop persistent debt collectors, and your credit score won’t continue to fall from nonpayment.

Get the agreement in writing and keep proof that you’ve paid it off.

Ignore it

A debt collector can still contact you about unpaid debts, even if they can’t sue you for them.

Note that unpaid debts may still have severe consequences such as:

• Credit score: Unpaid debts will reflect negatively on your credit score for up to seven years, making it more difficult to borrow money or rent an apartment in the future. If you do qualify for a loan, you’re more likely to have higher interest rates.
• Late fees: Old debts can still accrue interest and late fees, which can worsen your financial situation.
• Legal disputes: Generally, a lawsuit about a time-barred debt should be dismissed, but creditors may still try. If that happens, don’t ignore any summons, as that could make the situation worse.

Make a partial payment

If you don’t want to ignore the debt and can’t or don’t want to repay it in full, you can acknowledge it and set up a payment plan with the creditor. This might include making required monthly payments until the debt is paid in full or trying to settle your debt for less than the full amount. Note that settling a debt for less than was originally agreed to may still negatively affect your credit for up to seven years.

Note that doing this will reset the statute of limitations. You may want to consult a lawyer or a credit counselor before taking this step to protect yourself.

If you have a debt still within the statute of limitations, it’s generally in your best interest to pay it off so that you won’t have the long-term consequences of nonpayment on your credit. Consider using a balance transfer credit card to give you an interest-free time period to get caught up on payments or use another debt consolidation method.

Dispute the debt

If you don’t think the debt is yours or you think it’s already been paid, you should dispute the debt.

It’s possible to dispute an old debt without restarting the clock if you’re careful:

• Be mindful of what you say. Simply talking about a debt might not reset the clock, but you should still be careful. Avoid agreeing to anything, especially in writing. Even a simple email acknowledging the debt could restart the timeline.
• Collect your documents. Gather any documents related to your debt, like billing statements, loan agreements and written correspondence between you and your debt collector. Get a copy of your credit report from AnnualCreditReport.com to find out exactly when you last paid your debt and when the statute of limitations began.
• Get legal advice. An attorney can walk you through the dispute process and ensure you understand your rights while keeping the clock from resetting.
• Request a validation letter. Your debt collector must send you a debt validation letter within five days of communicating with you. You can use this letter to dispute a debt that isn’t yours or that is time-barred.

Be aware that not all debt collectors are who they say they are. There are many scams in the debt collection industry, so verify that the person you’re talking to is legitimate and that the debt is actually yours.

You can — and should — also dispute any collection letter that isn’t legitimate or is time-barred.

“Collection letters now have a set format with a form option on the collection letter to dispute. If there is any doubt about the account, consumers should dispute the debt,” Creeden said. “If you are sure the debt is too old, I’ve advised my clients to send a cease-and-desist request, or have one sent on their behalf.”

File for bankruptcy

If you want to get rid of the debt and can’t pay it off, you could consider filing for bankruptcy. This will also have long-term consequences to your credit.

What rights do you have with time-barred debts?

Before you choose which route to take, it’s best to know your rights when debt collectors reach out to you to collect the expired debt. The Fair Debt Collection Practices Act (FDCPA) protects you from debt collectors who engage in this unlawful behavior.

The FDCPA gives you the right to verify your debt so you can confirm it’s yours before deciding what steps to take. The FDCPA requires a collector to send you a written notice containing the name of the original creditor, the amount you owe, a statement saying you have 30 days to dispute the debt and information on how to dispute the debt collection. After receiving the validation letter, you can dispute the debt if the information is incorrect. That way, you can have the negative information removed from your credit report.

The FDCPA also lets you request in writing that the debt collector refrain from contacting you.

If you encounter a debt collector who violates your rights when attempting to collect time-barred debt, you can take the following actions:

• File a report with your state’s attorney general office.
• File a complaint with the Consumer Financial Protection Bureau. Note: This may not be available in the future. Look for recent updates about the status of the CFPB.
• Sue the creditor in federal or state court.

The bottom line

Debts often come with an expiration date called a statute of limitations. Once that date passes, you can no longer be taken to court over that specific debt.

However, it’s possible to inadvertently reset the clock. To avoid this, refrain from making any payments, acknowledging the debt in writing or initiating any other changes to the account.

If a debt collector continues to contact you about an old or expired debt, you can agree to pay it, negotiate a new payment plan or dispute it. Since time-barred debt laws vary by state, make sure you know your state laws — and your rights as a consumer — before taking action.

Frequently asked questions

• Can a time-barred debt affect my credit score?
  

  A time-barred debt will only affect your credit score as long as it remains on your credit report. Generally, past-due accounts will stay on your report for up to seven years before naturally falling off.

   

• Can a collection agency open an old debt as new?
  

  A collection agency can’t report an old debt as new. If your creditor sells an old debt to an agency, the timeline simply continues from where it left off.

• How can you tell if a debt is time-barred?
  

  Look at your credit report for when you last made a payment and look into the statute of limitations for where you live and where you lived when you opened the debt if you have moved.