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  Dear
Steve,
My niece has the idea that if she ignores her
creditors and does not have any contact with them for seven years,
then they can no longer come after her for the money she owes them.
She got this idea from a financial author. The author says that
the creditor can no longer sue you. I'm hoping you can elaborate
on this. I'm wondering if, despite the fact that they cannot sue
you, that they can:
- continue to record the debt and allow it to accrue
interest;
- prevent you from ever getting a loan;
- put a lien on any home or any real property that
you do get;
- garnish your wages.
My niece has the impression that once the seven
years are up, the debt goes away and she can start fresh. --
Katrina
 Dear
Katrina,
When I was much younger, there was a popular TV program called "The
Dukes of Hazzard." The Duke boys only had to cross the county
line to avoid the Hazzard County Sheriff. Unfortunately for your
niece (but fortunately for the rest of us), while she can run, she
cannot hide! Seriously though, yours is a great question and I hope
I can clarify some things for you and your niece.
Yes, there is a statute of limitations on the
collection of debts that varies in length from one to six years,
depending on the state in which you live. Until the limit runs out,
a creditor or collection agency may file a lawsuit to collect a
debt. The statutes -- and each state has a different one, spelling
out slightly different terms for different debts -- do not prevent
the creditor from filing a suit after that time. They do, however,
mean the defendant can have the suit dismissed using a statute of
limitation defense.
There is, of course, a catch: The
defendant must appear in court to present that defense.
In general terms, the clock starts running on the
statute of limitations from the date of the first missed payment.
However, any payment that is made after the clock starts running
(or even if it has run out) resets the clock. As an example, if
you reside in Colorado, the statute of limitations for credit card
accounts is six years. If during the fourth year you make a payment
to get a collection agency off your back, the clock will start again
after the next missed payment and the collector will have another
six years to collect the debt.
Now we'll address your concerns about what else can
happen to your niece. The rules for reporting a debt to the credit
bureaus are different than the statutes' rules. For example, a negative
report concerning nonpayment of a credit card account may stay on
person's report for seven years from the last date of payment activity.
Therefore, the account will continue to be reported on a credit
report after the statute of limitations has run out.
The negative information reported on your niece's
credit report that would possibly keep her from qualifying for a
loan will come off after the prescribed time, usually seven years.
However, she will need to build a positive credit history sometime,
or she may still be turned down not only for a loan, but a job,
insurance, certain types of licenses and security clearances. Not
to mention possible offers of marriage if her boyfriend finds out
about her credit record. After all, who needs to marry bad credit!
Sorry, I got a little sidetracked there. To obtain
a property lien or wage garnishment for a collection of debt, the
collector has to sue in a court of law. The statute of limitations
would be in effect for this type of collection action. However,
if the defendant does not appear in court to offer the statute of
limitations defense, it is usual for the court to grant a default
judgment, which allows the collector to request a lien or garnishment,
which can be renewed until the proverbial cows come home!
Having given you all this information, it is my experience
that most creditors are aware of statute of limitations laws and
will attempt to collect what is owed them before the limit runs
out. My advice to your niece is to pay what she owes and develop
and follow a plan that helps her avoid this type of situation in
the future! Unlike the mythical Duke boys, we live in an increasingly
global financial world and bad credit is not something anyone would
wish for.
Good luck.
The Debt Adviser, Steve Bucci, is the president
of Consumer Credit Counseling Service of Southern New England. Visit
CCCS
for additional debt
advice or click
here to ask a debt question.
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