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It’s easier for old debt to haunt Americans seeking refuge in bankruptcy, thanks to a recent ruling by the Supreme Court.
The nation’s highest court said debt collectors can try to collect expired debt through bankruptcy proceedings without running afoul of the Fair Debt Collection Practices Act, reversing a lower court’s decision. The case started when an Alabama debtor sued Midland Funding for trying to collect an time-barred $1,900 credit-card debt during her Chapter 13 bankruptcy.
The new ruling diminishes much of the liability collectors previously faced when filing bankruptcy claims for debt that passed a state’s statute of limitations. The Eleventh Circuit had ruled in a 2014 case that the strategy violated the FDCPA, dissuading many debt collectors from the practice.
“Because this (Supreme Court) ruling mitigates that liability, we will probably see more outdated claims being filed,” says Michael Ziegler, a bankruptcy attorney in Clearwater, Florida. “If consumers don’t know that they have the right to defend themselves, they can be faced with default judgement or, in this case, required to pay more into a Chapter 13 payment plan than otherwise needed.”
The decision also underscores how careful consumers should be when it comes to old debts. Creditors and debt collectors can try to collect expired debt forever by calling or writing letters, but there are laws they must follow. Here’s what you should know:
Know the statute of limitations: While the ruling allows debt collectors to try to recoup expired debt in bankruptcy, they still can’t sue you for it. Each state determines how long a creditor or debt collector can sue for an expired debt, which can range from three to 10 years. The length depends on the type of debt and type of contract. The clock starts when you fail to make a payment. Check with a legal aid or consumer attorney in your state or your state’s Attorney General’s office to find out the statute of limitations.
Get verification: If a debt collector calls or sends a letter to collect an old debt, ask for written verification to make sure the debt is yours with the date of last payment. This must happen within 30 days of getting a written notice of the debt. Collectors can’t collect debt until they provide verification. If the debt is outdated, you can use the written verification as proof of its expiration if the collector continues to come after you.
Stop annoying calls and letters: By law, debt collectors must stop unwanted contact if requested by the consumer, no matter if the debt has expired. Document when you make your request. Or, write the debt collector, asking to not be contacted again. Send by certified mail and get a return receipt. Keep a copy of the letter and return receipt for your records. Never promise to pay the debt in future, because that could restart the statute of limitations.
Don’t ignore a court summons: Some debt collectors still try to sue for outdated debt as a pressure tactic. If this happens to you, you must respond. Show a copy of the verification with the date of last payment to the judge, who will determine if the debt is time-barred. If it is, the suit will be dismissed. If you ignore the suit, the collector has a better chance of getting a court judgement against you and possibly garnishing your wages to pay for the old debt.
If you pay, do it right: If you have a nagging moral obligation to pay the old debt, pay it in full or pay a settled amount that the debt collector agrees to in writing beforehand. The agreement should state that the amount settles the entire debt and you are released from any further obligation. Get a copy for your records. Never send a small, good-faith payment because it could restart the statute of limitations clock and allow the debt collector to sue you.
Know how it affects your credit: Even if a debt is past the statute of limitations, it can still show up on your credit report and hurt your credit score. Negative items don’t fall off credit reports until after seven years from the date of the first delinquency. That means although creditors may be time-barred from suing to collect your credit-card debt after only three years in your state, the debt can remain on your credit report for another four years.
Object in bankruptcy: If you’re filing for Chapter 7 or 13 bankruptcy, review each proof of claim from every creditor with your lawyer. You can challenge a claim for many reasons, including expiration, by filing a written objection with the court. A judge will determine if the claim is valid. “There are a lot of debt buyers who through courts and other procedures will attempt to collect on outdated debts,” says Ziegler, “and hope they aren’t caught with their hand in the cookie jar.”
The article 7 Things to Know About Old Debt after a Recent Supreme Court Ruling originally appeared on ValuePenguin