2020 has been a heck of a year. Many of us are eagerly anticipating the ball drop on New Year’s Eve so we can put this year behind us. Perhaps the only people interested in slowing down the clock are creditors who don’t want the debts they are owed to get too old to collect.
You may not realize it, but the debt you hold has an expiration date, but it does. Creditors have a limited window of time during which they are able to sue you to collect past due payments. Once the statute of limitations — which is like a giant countdown clock — has run out, you are under no obligation to pay back what you owe. However, the old debt may continue to haunt you.
How Long Does It Take For A Debt To Expire?
The amount of time it takes for the statute of limitations on collection suits to pass differs from state to state. In Alabama, the statute of limitations is either three years or six years depending on the type of debt.
Does Expired Debt Simply Disappear
Unfortunately, expired debt does not simply disappear. Technically, you still owe it even if you cannot be sued over it. The Federal Trade Commission has a good explanation of the different options you have if you are sitting on a pile of expired debt, and the consequences of each:
- Pay nothing on the debt. Although the collector may not sue you to collect the debt, you still owe it. The collector can continue to contact you to try to collect, unless you send a letter to the collector demanding that communication stop. Not paying a debt may make it harder, or more expensive, to get credit, insurance, or other services because not paying may lower your credit rating.
- Make a partial payment on the debt. In some states, if you pay any amount on a time-barred debt or even promise to pay, the debt is ‘revived.’ This means the clock resets and a new statute of limitations period begins. It also often means the collector can sue you to collect the full amount of the debt, which may include additional interest and fees.
- Pay off the debt. Even though the collector may not be able to sue you, you may decide to pay off the debt. Some collectors may be willing to accept less than the amount you owe to settle the debt, either in one large payment or a series of small ones. Make sure you get a signed form or letter from the collector before you make any payment. This document should state that the entire debt is being settled and that the amount to be paid will release you from any further obligation. Without this document, the amount paid may be treated as a partial payment on the debt, instead of a complete payment. Keep a record of the payments you make to pay off the debt.
Keep in mind this is a very high-level overview of the different options available to all debtors. Figuring out the best path forward for you is a bit more difficult. That’s where we come in. The Padgett & Robertson team advises debtors in the Mobile area who are in financial trouble. Our experienced bankruptcy attorneys can evaluate your finances and help you decide what your next steps should be.