“Tick-tock” goes the clock on a creditor’s legal ability to collect on a debt owed. Known as the Statute of Limitations, state laws that vary in each state, limits the time a creditor has to file a law suit to collect a debt. If they do not sue in time, the debt is no longer legally enforceable. This is what the debt collectors don’t want you to know. In California, the Statute of Limitations is Four (4) years on a written agreement from the last activity date. The last activity date is the last time the credit was used, or the date of last payment, whichever is later. The Fair Debt Collections Practices Act (“FDCPA“) prohibits, among other things, “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. 1692e. So, what does all this mean to you?
1. Debts do not automatically go away after four (4) years. In fact, the debt can be collected indefinitely. However, after the Statute of Limitations has passed, debt collectors can no longer sue to collect. They also cannot make false representations or threaten to sue you in order to get you to pay up.
2. The debt will stay on your credit report for seven (7) years from the date of first delinquency. So, even if a debt collector cannot sue, they can still collect the debt and it will stay on a credit report until seven years has passed.
3. Those calls and letters may still keep coming long after the Statute of Limitations has run because debt collectors are still allowed to collect the debt; FOREVER.
4. The ONLY way to eliminate debt is to pay it in full; negotiate and settle for less than what you owe; or file bankruptcy.
It’s important to understand your rights and the rights of creditors when working to eliminate debt and improve credit scores so that you can move on with your financial life. Be sure to consult with your tax preparer as some decisions make cause income tax to you. Remember that any debts discharged in bankruptcy do not incur income taxes.