Should I Pay on a Time-Barred Debt?

A time-barred debt is one that is deemed uncollectable due to its age. Consider the advantages and disadvantages before making the decision to pay.

Time Frame

The statute of limitations specifies how long after the first date of default a creditor has to bring a lawsuit in small claims court. The typical time frame is anywhere from two to 10 years or longer, but you should contact your state's attorney general's office for specific information. To determine whether a particular debt is time-barred, obtain a copy of your credit report from each of the three main credit reporting bureaus: Equifax, Experian and TransUnion. The clock effectively begins on the date of initial default, or the first missed payment. Check your credit reports carefully to verify the true date of default, as collection agencies may attempt to re-age old accounts.

Benefits

Under the Fair Debt Collection Practices Act (FDCPA), debt collectors are prohibited from taking certain actions against you to pursue time-barred debts. If a collection agency threatens or attempts to sue you for a debt that has been deemed time-barred, then it is in violation of the FDCPA, and the lawsuit must be dismissed. The FDCPA also prohibits debt collectors from acting in a harassing or threatening manner or making false statements in an attempt to force you to pay. If you can provide proof that a debt collector has engaged in any of these actions or has attempted to sue you in violation of the FDCPA, you may be entitled to file a countersuit for damages of up to $1,000. You may also request in writing that the debt collector not contact you further regarding the debt. The FDCPA is designed to provide debtors legal protection against debt collectors, but it does not erase the debt or your responsibility to repay it.

Warning

Negative information can remain on your credit report for up to seven years. Delinquent accounts will lower your credit score, making it more difficult to get credit approval or to obtain favorable interest rates. Also, credit checks are increasingly being included as part of pre-employment screening, which may affect your ability to get a job. Depending on how old the account is, paying on a time-barred debt may actually have a negative impact on your credit score, as it renews the activity on the account. Over time, however, this effect will lessen as your overall debt load is decreased and negative information is removed.

Action Steps

Verify the age of the debt and when it is scheduled to be removed from your credit report. If it is scheduled to fall off your credit report soon, then you may be better off waiting until it does before you decide to pay. If a significant amount of time remains before the debt will be removed and you're planning to apply for a loan or other type of credit in the near future, then it may benefit you to contact the creditor and make arrangements to pay.