Debt Re-aging Dangers: Use Caution When Contacted About Old Past-Due Bills

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The Federal Trade Commission has just cracked down on debt collector Asset Acceptance LLC for misrepresenting itself when trying to collect old debts. But this story is much bigger than just one company. There is an entire industry out there, called the debt-buying industry, that you may not know about. Sounds weird, but your old, unpaid debts have value and can be sold to other companies. These companies buy your old debt for a fraction of what you owe in hopes that they can collect the whole amount from you and make a big profit. Old debt like this is dubbed "zombie debt," because it never seems to die.

Here's the tricky part: All states have statutes of limitation on how long you can be sued to collect a debt. And after seven years, unpaid debts usually fall off your credit report and are no longer held against you. The FTC accused Asset Acceptance of implying to debtors that it could sue them for debts that were past the statute of limitations. They can't do that unless you let them. Asset Acceptance had to pay fines in a $2.5 million settlement and must now disclose that they can't sue over old debts that passed the legal time limit. But the company said the settlement does not represent admission of the FTC's claims.

That's where "debt re-aging" comes in. Some consumers, out of principle, will agree to make a payment on an old debt, not knowing that, depending on where they live, that can reset the statute of limitations, giving the debt collector a fresh opening to take legal action against them. The other way it can happen is when a collection company re-reports an old debt that has fallen off your credit report to the credit bureaus, so that the seven-year time period begins again.

As I write this, it sounds so confusing, but here's the bottom line: You are still responsible for debts past the statute of limitations. But if you are in tough financial straits, you should do your homework before starting to pay them down, because you may be forced to pay the entire debt when you're not in a position to do so. Worse yet, you could find yourself in court, where a debt collector could possibly garnish your wages or put a lien against your house to collect.

Your choices, as a consumer faced with a claim for an old debt, sometimes called a "time-barred debt," have so many "ifs" and "buts" that I'm going to do something unusual and cut and paste the FTC's own advice brochure in here, so that I don't mess up the explanation. First, here is the entire FTC brochure to review. And below are the most important parts:

The Federal Trade Commission's Advice on Time-Barred or Old Debts:

"The statute of limitations varies from state to state and for different kinds of debts. It is also tricky because, under certain circumstances, the clock can be reset, and the time period can be started fresh. That's why the Federal Trade Commission (FTC), the nation's consumer protection agency, says it's important to understand your rights if a debt collector contacts you about an old debt.

When is an old debt too old for a collector to sue?

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