Thursday, May 31, 2007

Statute of limitations on debt

MSN recently ran an informative article on collection agencies trying to collect old debts. In "Is there a statute of limitations on debt?" they give several examples of how the law protects consumers against old 'zombie' debt. I have some experience with this because not only have I been attacked by zombie debt, but I know others who have as well.

Brian had rebuilt his credit and was looking forward to buying his first home when he got a disturbing call from a collection agency. "They claim I have an outstanding debt of $387.30 from the early 1990s," Brian wrote. The debt was supposedly from a credit card that Brian doesn't remember ever having. "They have threatened that if I do not pay this, it will damage my credit report

As a matter of fact, this exact thing happened to me. In 1998 I joined a gym for a year, and paid with a credit card. Apparently I was not very careful (and since I was just out of high school, I probably didn't even read the contract fully) and did not realize that I had also allowed them to automatically renew my membership on a yearly basis. Some time after I had canceled my credit card, so when the gym tried to charge it, it bounced. They sent it to a collection agency. The difference between Brian and I is that I was never contacted about it.

In 2005 I purchase a house and discover the collection on my credit report. I had to call the agency to get it paid, and the gym wasn't even in business anymore. Could I have fought it? Possibly, but I would have had to do it through the court, and file in a state that I hadn't lived in for 4 years. It would have cost me more just to fly out there than to pay it.

Collectors can't legally restart the seven-year clock by "re-aging" the debt (giving it a new delinquency date) or by selling it to another agency.

This is true, technically. In reality, this happens all the time. A member of my family was hounded for a few thousand dollars for 20 years, they kept reselling it to other agencies and restarting the clock. He had no paperwork, the agency refused to send any paperwork (its unlikely they had any) and he would have had to find a lawyer and sue in court in a state across the country. Collection agencies can get away with this because they know most people are not going to risk losing money from their job, spending on travel and a lawyer and court fees.

What could my relative have done? At that time there was no Internet to research with and no apparent agency to call for help. The average consumer just didn't know what to do, and the collectors certainly weren't forthcoming about their rights.

Jerri's credit card number was stolen and used to call a 900 number, a premium call that cost more than $200. Her credit card issuer removed the charge and reissued new cards. Apparently the 900-number service provider turned the debt over to a collection agency

Again, it comes down to finding a court to settle the matter. How much is Jerri going to have to spend to fix this? Will she have records from a stolen credit card that was supposedly all taken care of 3 years ago? This also brings up a very important point. We are supposedly protected against fraudulent charges on our credit cards, but what protects us from the company that charged it in the first place?

making a payment on an old debt, agreeing to an extended repayment plan or even acknowledging that the debt is yours can extend the statute of limitations or restart the clock altogether.

Sure, you can hang up the phone and ignore them. But what prevents the collection rep from pressing a button and listing the debt as 'verified', or that some repayment plan has been agreed to? Do you record all your phone calls? Will the agency keep theirs? And even if they do, how much will it cost me to get a lawyer to subpoena the agency to turn over their records?

This happened to me as well. I ordered phone service with Qwest, and they ended up performing $80 of services (in house wiring) that I specifically told them not to do, because I would do it myself. I was in college at the time, and the roommate let them in because the tech said he needed to "check" something. So here I am with a bill showing installation I never asked for. I spent 3 months arguing with them, and soon the bill became a generic debt owed - there was no longer any mention of the installation at all in their records, only a past due balance.

It went to collections and I had to pay. What else could I have done? I could not prove that I didn't ask for the installation, they refused to send me records, supervisors never called me back, I would call on a daily basis and get nowhere. I even reported them to the BBB. When I did get the letter from the collection agency, I wrote in disputing it and gave my reason. What did they do? They contacted Qwest, verified the debt, and just declared it valid. If I really wanted to pursue it I would have had to take them to court. How is a college student supposed to find time to sue some major corporation?

The article finished with a great piece of advice for enforcing your rights, too bad it probably won't work.

If you're sure the debt is too old for a lawsuit, you could send the collector a letter via certified mail, return receipt requested. The letter should include the fact that the debt isn't yours (if that's true), that the statute of limitations has expired and that you want all collection efforts stopped.

Apparently the author of the article has never received a collection call. Most likely, they will berate you and demand payment and just repeat "pay!" over and over again while you desperately try to ask them for their address, their phone number or, heck, even the name of the agency.

It's quite easy to berate those who are dealing with collections. To call them irresponsible for letting their debt become unmanageable or for neglecting to research their rights. But when you are faced with these situations, sometimes it can feel like you have no rights, and for all practical purposes, sometimes you don't.

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