Dear Debt Adviser,
I received a letter from a collection agency. The debt of $600 is past the statute of limitations. Can it report me to the credit bureaus? It hasn't yet. This is the first letter I've received in years and years. It wants to settle for 25 percent of it to avoid further collection. Should I send it?
You have three choices. Pay up, get an attorney or do nothing. Let's look at each and see which is best for you.
However, before you do anything, I suggest you ask the collection agency for proof that you owe what it says you do and that it is authorized to collect it. Send a certified letter with a return receipt and see what happens. Until it sends you proof, the Fair Debt Collection Practices Act says it can't contact you again on the debt.
Next, I suggest that you verify when your last payment was made, if possible. If you keep checking account records for seven years like I do, then you can check those records. What you are looking for are any recent payments. Any payment will reset the clock on the statute of limitations. Say it has been six years and 51 weeks since your last payment and the statute of limitations is seven years. If you make a payment, the seven-year period starts all over again.
With these preliminaries out of the way, if you decide you want to settle the bill, be sure you have $150 you can spare. If you don't already have it put aside, then sending the money could be a major mistake if it causes you to miss payments on other current accounts that report data to the credit bureau. Also, be sure to get the offer in writing from the collector saying that the debt will be considered satisfied for $150 before you send in anything. Then keep the statement from the collector and your canceled check so you have proof the debt has been paid, should it pop up again at a later date.
If you decide not to pay and to use a lawyer, have the attorney write a letter stating the age of the item, that it is past the statute of limitations, that you don't intend to pay a penny and, here's the crusher, that all future contact must go through the attorney. No collectors that I know will bother to try to collect an uncollectible debt from a lawyer. And they can't go around the attorney once they are notified you have a lawyer or they can be sued. Yes, by your attorney!
Lastly, should you decide to do nothing, the collectors can continue to bother you, but can't successfully take you to court and get a judgment as long as you attend and show the judge that the debt is past the statute of limitations date. This can be bothersome and for $150, I might suggest you try to resolve the issue once and for all.
As far as your credit report is concerned, the debt can only be reported to credit bureaus for seven years after the account was first reported delinquent. If the aged debt shows up on your report, you can have it removed though a simple dispute process.
However, if the debt is not more than seven years old, the collector could legally report it to the credit bureaus. Your payment history is calculated as 35 percent of your total FICO credit score. Therefore, a collections account on an otherwise good credit report could cause a significant drop in your credit score. In addition to hurting your ability to obtain credit, a negative credit report can impact a job hunt, promotion opportunities and insurance premiums.
If it was my debt and I had the $150, I'd pay it. Life's too short to spend any of it messing with collectors.
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