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How to handle Time-Barred Debt

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How to handle Time-barred debt

You cannot be sued for time-barred loans, however you do still owe it.

by Sean Pyles Senior Writer | Personal finance and financial debt Sean Pyles leads podcasting at NerdWallet as the host and producer of NerdWallet’s “Smart Money” podcast. On “Smart Money,” Sean talks with Nerds from NerdWallet’s NerdWallet Content team to answer listeners’ personal finance questions. With a focus on shrewd and actionable money advice, Sean provides real-world guidance to help people improve in their finances. Beyond answering listeners’ money concerns on “Smart Money,” Sean also interviews guests outside of NerdWallet and produces special segments to explore topics like the racial wealth gap, how to start investing, and the history of college loans.

Before Sean was the host of podcasts at NerdWallet, he covered topics that dealt with consumer debt. His writings have appeared throughout the media including USA Today, The New York Times as well as other publications. When he’s not writing about personal finance, Sean can be found digging around his garden, going for runs and walking his dog for long walks. Sean is located within Ocean Shores, Washington.

Aug 5, 2021

Written by Kathy Hinson Lead Assigning Editor Personal financial, credit scoring, financial management and debt Kathy Hinson leads the core personal finance team at NerdWallet. Prior to joining NerdWallet, she worked for 18 years working at The Oregonian in Portland in positions such as copy desk chief and team leader for design and editing. Prior experience includes news and copy editing for many Southern California newspapers, including the Los Angeles Times. She graduated with a bachelor’s in mass communications and journalism at the University of Iowa.

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If a loan is longer than the original, it’s known as time-barred debt. It means that creditors don’t have the legal right to sue you for it, although they may try to do so. They may also pursue you in different methods, including phone calls and negative credit report.

Be cautious, as debt collection has many pitfalls. There’s a good chance that you never took out this debt, or that the collector is seeking the wrong amount or you have already paid the debt and the collection was in error.

There are a variety of methods to address this. Each one has advantages and drawbacks, and you might want to talk to an expert familiar with the laws governing consumers in your local area prior to taking any action.

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What can you do

If a collection agency contacts you about a time-barred obligation, you can:

Challenge it.

Make it pay off But beware for ” ” (more on that below).

You can discharge it through bankruptcy.

Ignore it.

A debt collector should notify you a written notice within five days of the first time they contact you. The notice should contain the amount owed, date of the last payment, who the debt collector is, and how to obtain information about the creditor who originally contacted you. If you don’t receive this notice within 10 days of when the first contact from the debt collector you, request it.

Challenge it

If you’re asked to pay a time-barred loan which isn’t yours, was already paid off or is otherwise inconvenient, you can contact the creditor and inform them that you’re disputing the obligation.

You have 30 days from first contact by the collector of debt to dispute the debt before it is as defaulted. If you challenge the debt within the timeframe, debt collection efforts must be stopped until the problem is solved.

You can still challenge the debt within the 30 day period, but the creditor will contact you to inquire about payment while the dispute is being investigated.

Make sure to be as precise as you can within your correspondence. Say the reasons why the debt collection effort isn’t valid, and include information about payment history or why the debt may not be yours and any other pertinent details. It is recommended to mail the letter via certified mail so you get confirmation of receipt.

You may want to seek legal advice while the case is being looked into, since the process of challenging a case is often a bit complicated.

If you feel that the debt collector is breaking , you can also complain to the or the .

Pay it off and beware of the possibility of reviving zombie debt

The debt may be paid off and save you from collection saga, but make sure you can afford to pay the whole amount, including any penalties or fees.

Although you may think paying at least a little bit will get the creditor away from your shoulders, this can cause more harm than good. Making even one payment on time-barred debt can be the spark that brings it back to life and alters the time limit for repayment.

“In the case of a debt that is time-barred, failing to make payments can be extremely damaging,” says Colin Hector, staff attorney at the FTC. “In certain states, if you make a single payment regardless of whether you make a payment of $1 or $5 it will reactivate the entiredebt, and can be sued for the debt and the associated fees. The consumer should be aware what their options are prior to when they make a payment to a amount.”

If you do want to pay for it, you have several alternatives:

In full, pay with a lump sum.

Talk to the creditor about how to set up a payment arrangement.

You can negotiate a deal to settle the debt by paying a portion.

In full payment, you can take the debt off your shoulders for good, however, make sure that you have the agreement in writing before you sign it. Make sure you have this document in case the payment wasn’t properly recorded or the debt is sold again to another collector.

It is also possible to convince the collector to take some portion of the amount you owe as settlement of the credit, but you must be aware. The debt might not be completely gone. If you don’t sign an agreement explicitly stating that the payment in part will pay for the entire debt, the collector can sell the rest of what you owe to a company for collection — which can then be able to pursue you. And the debt will be marked as a partial loan on your credit file, which will not look great to prospective creditor later on.

No matter what approach you take, be sure to get the agreement written before you pay the money. Be aware of all transactions and communications in the event that the creditor fails to adhere to the deal. Written correspondence is the easiest to be tracked; if you decide to communicate by phone, record the time, date along with the names of those you spoke to.

Discharge through bankruptcy

If you’d like to relieve yourself of this obligation for good but can’t afford to pay it off you can apply for .

This will take the debt that is not paid in collections off your plate. However, the debt that you have incurred through the bankruptcy will effectively replace it over the next few years. The likelihood is that it will be after you file, though.

Do not ignore it

If your debt is time-barred it is not possible to sue for the payment, but the debt will not go away. You may ignore it, but creditors and you won’t.

The majority of delinquent debts will remain on your credit reports for as long as seven and a half years. It’s more difficult getting new lines of credit and you’ll be charged more expensive interest rates.

Furthermore, debt collectors could continue to pursue payment. If you do not pay your debt long enough, you risk the current collector selling you the debt again and then you’ll need to go through the process again with a new collector.

What to do if you’re sued

Beyond trying to seek payment creditors may also sue you even though a debt is past its statute of limitations.

The most important thingto remember: Don’t ignore such a lawsuit. Ignoring it likely would result in an automatic judgment against you, which may mean . Pay attention to any notices you receive, act quickly and exercise your rights as a consumer.

Consider talking with an attorney regarding how to proceed, and gather all documents you have proving that the debt is time-barred. If the case goes before a judge, you’ll need to submit proof of the date of last payment as well as information regarding the debt. Simply stating that the debt is not time-barred is enough to get the case dismissed.

It is in violation of the Fair Debt Collection Practices Act for a debt collector to pursue you over an unpaid debt that is time-barred, so you can also file a complaint with the CFPB as well as the FTC and your state attorney general’s office.

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Author bios: Sean Pyles is the executive producer and host of NerdWallet’s Smart Money podcast. His work has been published on The New York Times, USA Today and elsewhere.

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