 Rules
differ for reporting debt, collecting debt
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 Dear
Debt Adviser,
In your column, "New collector, new credit woe," you did
not mention that there are state statutes of limitations regarding
debt collection -- she still owes the money, yes, but she may legally
not be required to repay it, hence the threat of a judgment may
not exist.
-- K.C.
 Dear
K.C.,
Thank you for writing and pointing out something that I want to
clarify regarding my answer to Julie who was worried that paying
a 7-plus-year-old debt would mean that the debt would be reflected
on her credit report for another seven years.
I said in the
column, which has since been updated, the start date for the
seven-year credit-reporting period on a debt is the original date
of charge off. Making a payment on that debt does not restart the
clock for the credit reporting agencies. The debt can only be reported
legally for seven years from the original charge-off date.
While not Julie's original concern, some of my readers wrote to
point out there are two clocks: One for how long a debt can appear
on credit reports and another for how long the legal system considers
a debt to be enforceable under state statutes of limitations. The
credit-reporting clock can't be restarted, but the statute of limitations
clock can restart when a payment is made.
Also, since I don't want to get letters from my legal friends and
I am not a lawyer, let me just add that this should not be considered
legal advice, which you can only get from an attorney. However,
I did ask my older cousin, Fred Costello, who is a lawyer, for some
legal insights.
I said that Julie still morally owes the debt even though it is
seven years old. However; the debt may not be legally collectible
due to state statutes of limitations. You can check the particular
statute that applies to your state in the Bankrate feature, "State
statutes of limitations for old debt."
A state statute of limitation does not prevent a creditor from
either trying to collect a debt or even taking you to court to collect
on a debt, what it does is provide you with a defense whereby the
court will dismiss the case if you claim the defense and meet the
court's criteria, but you have to go to the court hearing to defend
yourself for the statute to be useful.
Once you make a payment, the clock restarts on the statute of limitations.
Unlike the law that prevents debts from being reported to the credit
bureaus more than seven years after the original charge-off date,
the statute of limitations date is based on the last activity. So
when you make a payment there is activity on the account and the
clock begins ticking once again. That action gives the creditor
another chance to collect if you did not pay the account in full.
For those readers out there who are looking up the statute of limitations
for your states and deciding not to pay but rather to wait until
the debt is no longer legally collectible, be aware that collection
activity often increases just before a debt reaches its statute
of limitation.
Hope this clears up my answer to Julie and helps other readers
to understand that it is always smart to get legal counsel in legal
matters, in addition to reading the Debt Adviser column!
The Debt Adviser, Steve Bucci,
is the president of Money Management International Financial Education
Foundation and the author of Credit
Repair Kit for Dummies. Visit MMI
for additional debt
advice or click
here to ask a debt question.
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