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Special section Managing debts in collection

Be careful what you say if an old debt comes back from the grave. It could cost you.

 
Dealing with old debt

Don't let an old debt come back to haunt you.

Some debt collectors are unearthing old debts, debts that are five to 10 years old or more, in the hope of squeezing some money out of unsuspecting consumers.

"I had one guy who got a call on a debt 14 years later," says Gerri Detweiler, author of "The Ultimate Credit Handbook."

A collection call on an old debt can be tricky to handle, and if you handle it wrong it could lead to big trouble down the road.

First, it's important to realize that an old unpaid debt can't hurt you nearly as much as a new unpaid debt.

An unpaid credit account will mar your credit report for seven years. But once your debt passes the seven-year mark, you're in the clear.

You are at risk of being sued for your newer debts anytime up until the last minute of the statute of limitations. With an older debt, any debt collector that threatens to take you to court is breaking the law.

That's quite a difference and it all hinges on whether the debt a collector is haranguing you about is beyond the statute of limitations for delinquent debt in your state.

Once a debt is older than the statute of limitations for debt in your state, a debt collector no longer has the right to sue you for payment. You may still have a moral obligation to pay back the debt, but you can't be sued over it.

"They can still ask you to pay, but they can't threaten to sue. If they do, it's a violation of the Fair Debt Collection Practices Act," says John Ventura, a consumer attorney in Brownsville, Texas, and author of the e-book "Stop Debt Collectors Cold."

Let's say you still owe some money on an old credit card account left over from your college days, 10 years earlier. Since the debt is more than 7 years old, it's no longer listed on your credit report. And let's say the statute of limitations for credit card accounts in your state is five years.

A debt collector may call you and ask you for payment for this forgotten account, but he can't take you to court or threaten to sue you over it. If he does, he's violating the Fair Debt Collection Practices Act.

What a debt collector cannot do:

Watch your step
Even though a debt collector won't ever admit it, you're the one with the advantage here. But one little misstep could change all that.

In some states, making a partial payment to a debt collector or even acknowledging that you owe the money is enough to make an old debt new again.

If this happens, the five-year statute of limitations on your debt starts all over again. A debt collector has five more years in which to sue you for payment. And a non-payment on your new-again debt could be reported on your credit report. Then the advantage transfers to debt collectors.

The best way to handle a collection call for an old debt is to say as little as possible. Don't agree to pay. Don't acknowledge the debt.

In her book, "Money Troubles: Legal Strategies to Cope With Your Debts," attorney Robin Leonard offers the following advice:

"You should never talk to the collection agency about it at all, even if they call at a permitted hour of the day. Just hang up the phone or put the receiver down and walk away."

The best way to respond to a collection notice on an old debt is in writing.

Know the law
Under the law, a debt collector must send you a written notice telling you the amount of money you owe and the name of the creditor. If within 30 days of receiving this collection notice you write a letter back disputing the debt, a debt collector may not contact you again until they can verify the debt..

It's a good idea to send this letter via certified mail so you'll have proof that the debt collector received it. Under the law, a collector may only renew collection activities if proof of the debt, such as a copy of a bill, is sent to you.

"Definitely seek a verification," says Mary Fons, a consumer protection attorney in Stoughton, Wis. "If they can't prove it, you don't pay it."

Old debt gets passed back and forth so often by debt collectors that there's a good chance some account records, including yours, could be lost.

 
 
Next: "... you could easily cut your debt in half."
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