If you’ve ever experienced a rough patch in your financial life and couldn’t pay a debt, you know how terrible it is. Getting calls from collectors and seeing your credit scores take a dive can be an extremely stressful situation. No matter if you want to clean up your credit report and have an old account coming back to haunt you, it’s important to understand your rights.
Old Debt and Your Credit Report
Accounts with positive information remain in your credit file for 10 years. In contrast, those with any negative information such as late payments and accounts in collections stick around for 7 years.
A common misconception about old debt is that if you pay it in full or settle for less, it instantly disappears from your credit report and boosts your credit scores. No matter if you pay a portion or the full amount of an old debt, it doesn’t go away. Every old debt stays on your credit report until 7 years after the date it first became delinquent.
Having old accounts with negative information certainly hurts your credit scores; however, they become less damaging as they age. In addition, if you make payments on credit accounts on time each month, that fresh, positive data is a powerful way to repair your credit.
What's the Statute of Limitations for Debt?
Each state has its own laws on the statute of limitations for debt, and they differ depending on the type of account. Credit cards and loans, for example, are different types of debt and may have different statutes of limitations from each other. Some states' limits are as low as three years, while many others are as high as six or even 10 years.
Do You Still Owe a Debt After the Statute of Limitations Has Passed?
The statute of limitations expiring doesn't erase the debt, it only limits the creditor's ability to use the court to force you to pay the debt. So, you technically still owe a debt, even if the statute of limitations has passed. There are only three ways to erase a debt: paying it, having it canceled, or having it discharged in bankruptcy.
Can You Be Sued for a Debt After the Statute of Limitations Has Passed?
The statute of limitations restricts the time a creditor or collector can use the court to force you to pay a debt. Some debt collectors may sue you even after the statute of limitations has passed. Their records may be different from yours or they may hope you're unable to prove that the debt is no longer legally enforceable.
If you're sued for a debt after the statute of limitations, show up in court to defend your case with your proof that the time period has passed. Seek help from a legal professional for additional protection. Note that if you ignore a lawsuit summons, the creditor may win a default judgment against you.
How Do You Remove a Debt from Your Credit Report After the Statute of Limitations Has Passed?
The Fair Credit Reporting Act allows you to have old debts removed from your credit report when these debts are inaccurate. The expiration of the statute of limitations isn't enough cause to dispute a debt from your credit report.
Ways to Handle Old Debt
Pay off the full amount of debt owed
Even if the statute of limitations has expired on an old debt, you may still decide to pay the full amount. For many, honoring debt is a moral obligation, even after struggling through a financial hardship.
If the debt hasn’t already fallen off your credit report, paying it changes the account status from “unpaid” to “paid,” which improves your credit.
Begin making payments on your debt
If your financial situation has improved and you want to start chipping away on an old debt, remember that in some states it could restart a new statute of limitations period, giving you less legal protection.
Again, if it’s still on your credit report, having the account show as “paid” gives your credit a chance to improve.
Settle your debt for less than owed
If you want to pay some amount of your debt, most collectors are very willing to settle for a partial payment. Always get a settlement offer in writing first, otherwise your payment could be considered a partial payment, reviving the statute of limitations in some states.
When you settle a debt that’s still on your credit report the status changes to “settled,” for the remainder of its 7-year history. This indicates that the debt was not paid in full, as originally agreed, and will have a negative effect on your credit scores. That’s better for your credit than leaving it unpaid, but is not as good as paying it in full.
Pay nothing on your debt
If you don’t pay a debt, you still owe it even after the statute of limitations expires or it falls off your credit reports. Creditors can try to contact you and collect money indefinitely, even if they can’t sue you.