Sunday, November 9, 2008

The Statute of Limitations for Third-Party Debt Collectors

Third-party debt collectors are businesses or individuals hired by creditors to collect on unpaid debts for them. These collectors may work on commission, meaning that they agree to take a percentage of the money they successfully collect on the debt, or the collectors may buy the debt from the creditors directly, making them the party to whom the debtor must now pay the debt. The statute of limitations on their filing a lawsuit against the debt is the same as for the original creditors.

Statute of Limitations

    Debt collection does not have a statute of limitations, but a creditor must file a lawsuit against the debtor seeking a judgment within a certain period of time. Each state has its own set of laws stating for how long a creditor can pursue a particular debt in court. Generally, each state has different lengths of time for different kinds of debt. For example, in Nebraska, open accounts are pursued for four years, while debts that originated through written contracts are legally pursued for five years. Generally, the creditor must adhere to the laws of the state in which the debt was issued.

Third-Party Debt Collectors

    Debt collectors working either for or in place of the original creditor have, legally speaking, all the same rights as the original creditor. This means that the same statute of limitations that applies to the original creditor applies to the debt collector as well. So, if a debt can only be sued for within four years, then the debt collector must abide by this limit, even if he received the debt after two years have elapsed.

Credit Reports

    A related question is how long an unpaid debt will remain on a person's credit report. Unpaid debts bring down a credit score, meaning that they qualify as negative information. Under federal law, reporting agencies must strike all negative information from an individual's credit report after a maximum of seven years. However, some credit reporting agencies will chose to eliminate this information sooner. Theoretically, a debt could drop from a person's credit report while a creditor is still trying to collect it.

Considerations

    It is often misunderstood precisely what period of time the law refers to when it indicates a statute of limitations for a debt. Some people think it is from the date the debt was issued, while others believe it is from the date of the first payment. In fact, the statute begins on the date of the last payment on the debt. If a person makes a new payment on the debt, the statute of limitations resets.

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