Sometimes it can be hard to tell what a collection letter is really trying to say. For example, is the collector sharing a notice that they are required to share by law? Or are they trying to frighten the reader into making a payment?
Today, we’ll review one of those phrases.
If you have ever come across the phrase “The law limits how long you can be sued on a debt” on a collection letter, it is crucial that you understand the meaning. This one sentence may entirely change the way you choose to deal with the account.
Simple Notice or Scare Tactic?
When this disclosure appears on a collection letter, it is most assuredly not a scare tactic.
It can be alarming to see any phrasing that refers to being sued, which sends many people into a bit of a panic. In this situation, though, the entire sentence and context is very important. They are explaining that they cannot, or will not, sue you because of how long the debt has gone unpaid.
So, this is a win!
Eliminating this risk takes away one of the biggest concerns of debt falling delinquent.
In some places, law dictates that collection agencies and other collecting entities tell debtors that they cannot sue them. This crucial factor allows the consumer to make informed decisions on how to deal with the debt.
The paragraph may include other vital points for you to be aware of. For example, they may also explain situations where they can regain the option to take legal action, such as when the debtor agrees to make a payment. So, be sure to read the letter closely. Sometimes it helps you understand what not to do!
What is a Statute of Limitations?
A statute of limitations is how long a person or entity has to take legal action against another person or entity for a grievance.
Statutes of limitations apply to many different situations. For example, it can come into play in criminal, corporate, or civil matters.
Generally, a collector will not sue on a debt that has passed the statute of limitations. However, there are times when they may still do so. When that happens, they may be unaware of the passing of the limitation, or they may be hoping that the consumer isn’t aware of their legal rights.
Suppose someone is sued after the statute of limitations has passed. In that case, the debtor then has a solid legal defense should a creditor take legal action against the individual.
State Laws Regarding Debt Collection
Regarding debt collection, some laws are established under federal laws, and others under state laws. For example, the FDCPA (Fair Debt Collection Practices Act) is established under federal law, whereas individual states determine the statute of limitations applicable under civil contract law.
Each state dictates its own statute of limitations regarding debt litigation. While the time frame generally falls around 5-6 years, there is a great deal of nuance from one state to the next and one type of debt to the next. For this reason, it is essential to review this legal matter with a debt attorney who is familiar with the laws of your state.
Examples of the nuance that often come up which can complicate the interpretation of the statute of limitations on a collection letter are:
- Did you move to a different state than when you opened the account?
- What state law did the original agreement say it would use?
- Has there ever been a lawsuit filed on this account before?
- Was this a revolving line of credit, like a credit card, an installment loan, or some other type of debt?
- Was there a co-borrower on the account?
- Did you agree to make a payment after initially falling behind?
- Did you actually make a payment after initially falling behind?
- In some locations, did you acknowledge that yes, you owe that debt in writing?
These are just a few examples of facts to consider when determining what it means when you see “The law limits how long you can be sued on a debt” on a collection letter.
There is a good chance that seeing that language on a collection letter means the collector should not file a lawsuit. However, it is imperative to speak with a licensed debt attorney to be sure. They will be able to help you interpret the document correctly and guide you on the next steps.
What Starts The Clock?
In many jurisdictions, the account starts counting down toward the statute of limitation when the last transaction occurred. That, of course, does leave plenty of gray area, which is why it is best to err on the side of caution.
When you see “The law limits how long you can be sued on a debt” on a collection letter, a deep sigh of relief is warranted! This is because the legal risks on the account are likely much less when that statute has passed.
While this is wonderful news, it also helps to know that there are continued implications to having the debt remain outstanding.
When an account is delinquent, it will be reported to the credit bureaus as being behind. The statute of limitations does not have any tie to how long an account appears on your credit report.
Accounts generally remain on credit reports for seven years from the initial delinquency. So, even if you live in a state with a short statute—say three years—it will likely continue to appear in your credit report until the end of that seven-year time frame.
In addition to appearing on your credit report, you may still experience collection activity on the account. Even if the collector cannot sue, they can call and send letters as long as they wish, up until you tell each new collector to stop in writing. An entire subset of the debt purchasing industry focuses on purchasing debt long past the statute of limitations.
If they continue calling and sending letters, your risks are not likely to change as long as you do not do something that resets the statute of limitations. Some ways you can unintentionally do this are by making a payment or even just a promise to make a payment on the debt in some states.
Speaking with a debt attorney will help you understand how to handle ongoing collection activity on post-statute accounts. In fact, several laws govern the collection of this kind of debt. Suppose they are not adhering to these regulations. In that case, you may be able to take action against them, possibly leading to your receiving money from the collector.
If you are in the market for a home or a mortgage refinance, the debt may pose a hurdle to you. Sometimes they will require the borrower to resolve the debt even if it is past the statute of limitations.
You may have the option of settling the debt, or they may require that you pay the balance in full to complete the financing.
What to Do
Now that you understand what it means to see “The law limits how long you can be sued on a debt” on a collection letter, what’s next?
Sometimes inaction is the best strategy.
Suppose you confirm that the account is truly past the statute of limitations, congratulations! Aside from a pesky remark on your credit report and occasional letters or calls, you are not likely to have much more trouble with this account. Even if the account isn’t actually past the statute of limitations, save the letter. If the same collector later files suit you can produce that in court to show why the case should be dismissed, because you relied on their assertion.
Given that this is a state law with quite a bit of nuance, we suggest speaking with a debt attorney familiar with your state laws to ensure correct interpretation of the letter. The legal professionals at National Legal Center are glad to discuss your available options to help you move forward with confidence.