How to avoid resetting the clock on old debt

Dealing with debt can be stressful, but it’s even worse when creditors or collectors threaten legal action.

Some types of consumer debt have an expiration date known as the statute of limitations. Once the debt “expires,” your creditors can no longer take legal action against you to collect payment.

While paying debts so they don’t negatively affect your credit score is generally in your best interest, you might not want to reset the clock on old debt. If you’re not careful, you could reset the clock and open yourself up to legal action. You may want to avoid taking certain actions — like making a new payment or acknowledging the debt in writing — until the clock runs out or you can pay the debt.

How the statute of limitations works with old debts

Most states have a statute of limitations on old debts. This limits how long a creditor or debt collector can take legal action against you in pursuit of repayment. Once the statute of limitations expires, the debt becomes “time-barred,” meaning that debt is no longer legally enforceable.

The statute of limitations depends on the type of debt and where you live but is typically three to six years. Some types of debt, like federal student loans, don’t have a statute of limitations, and others may have a longer timeline.

“The statute of limitations in some states are six or 10 years after the last payment was made on a defaulted account,” said Michelle Creeden, Attorney and Practice Administrator at The Law Office of Fox, Kohler & Associates, PLLC.

Although a debt collector can’t take you to court over an expired debt, they can still try to collect on it. They can continue to call you or send letters to get what they’re owed. They can’t use legal means, such as a lawsuit or wage garnishment.

Time-barred debts can also stay on your credit report for up to seven years, hurting your ability to get loans or credit cards in the future. The negative consequences of not paying a debt are often severe, but you may want to be careful handling time-barred debt to make sure you can pay it without legal action being taken against you.

Actions that can reset the clock on old debt

The statute of limitations protects consumers from being endlessly harassed by creditors about old debts. However, it’s possible to accidentally reset the clock on an old debt — and enable your creditors to once again pursue that debt using legal avenues.

Even if your debt was only a few months away from being time-barred, these actions can reset the clock, making it longer before the debt is passed the statute of limitations.

Making a new payment

One of the fastest ways to revive an old debt is to make a payment. Even a partial payment could restart the statute of limitations. By making a payment, you’re acknowledging that you do, in fact, owe that debt.

Once you’ve made a single payment, your creditors can attempt to take you to court. They may also be able to sue you for the full amount owed plus interest and fees.

Acknowledging the debt in writing

Acknowledging that you owe money on a specific debt can also restart the clock. Fortunately, there are more consumer protections than before.

“It used to be that even admitting something was your debt could be construed as you recognizing and agreeing to be collected upon,” Creeden said. “Now, short of an agreement in writing to pay the debt or making a voluntary payment, the clock doesn’t just restart.”

Making changes to the debt

Negotiating or settling a debt could reduce how much you owe but also reset the clock. The same goes for agreeing to a new repayment plan.

Only do these things if it makes financial sense to do so. Get any changes in writing, and keep records of any payments you make or correspondence between you and your creditor or debt collector.

Making a charge

Certain types of revolving debts, like credit cards or lines of credit, can stay open for years. Don’t use your accounts if you have this type of debt and are trying to run out the clock. Even a single charge could restart the timeline.

Discharging a debt through bankruptcy

Filing for a Chapter 7 bankruptcy will generally discharge — or eliminate — your unsecured debts. Once this happens, your creditors can no longer pursue that debt in court.

However, if your request for a discharge is denied or if the court finds out the debt was fraudulently discharged, the statute of limitations could be reset.

What to do about time-barred debts

If you have an old debt or a debt nearing the end of the statute of limitations, you have a few choices on what to do with it.

Repay the debt

If you can repay the full amount of debt, that’s most likely the best option. You’ll be able to stop persistent debt collectors, and your credit score won’t continue to fall from nonpayment.

Get the agreement in writing and keep proof that you’ve paid it off.

Ignore it

A debt collector can still contact you about unpaid debts, even if they can’t sue you for them.

Note that unpaid debts may still have severe consequences such as:

• Credit score: Unpaid debts will reflect negatively on your credit score for up to seven years, making it more difficult to borrow money or rent an apartment in the future. If you do qualify for a loan, you’re more likely to have higher interest rates.
• Late fees: Old debts can still accrue interest and late fees, which can worsen your financial situation.
• Legal disputes: Generally, a lawsuit about a time-barred debt should be dismissed, but creditors may still try. If that happens, don’t ignore any summons, as that could make the situation worse.

Make a partial payment

If you don’t want to ignore the debt and can’t or don’t want to repay it in full, you can acknowledge it and set up a payment plan with the creditor. This might include making required monthly payments until the debt is paid in full or trying to settle your debt for less than the full amount. Note that settling a debt for less than was originally agreed to may still negatively affect your credit for up to seven years.

Note that doing this will reset the statute of limitations. You may want to consult a lawyer or a credit counselor before taking this step to protect yourself.

If you have a debt still within the statute of limitations, it’s generally in your best interest to pay it off so that you won’t have the long-term consequences of nonpayment on your credit. Consider using a balance transfer credit card to give you an interest-free time period to get caught up on payments or use another debt consolidation method.

Dispute the debt

If you don’t think the debt is yours or you think it’s already been paid, you should dispute the debt.

It’s possible to dispute an old debt without restarting the clock if you’re careful:

• Be mindful of what you say. Simply talking about a debt might not reset the clock, but you should still be careful. Avoid agreeing to anything, especially in writing. Even a simple email acknowledging the debt could restart the timeline.
• Collect your documents. Gather any documents related to your debt, like billing statements, loan agreements and written correspondence between you and your debt collector. Get a copy of your credit report from AnnualCreditReport.com to find out exactly when you last paid your debt and when the statute of limitations began.
• Get legal advice. An attorney can walk you through the dispute process and ensure you understand your rights while keeping the clock from resetting.
• Request a validation letter. Your debt collector must send you a debt validation letter within five days of communicating with you. You can use this letter to dispute a debt that isn’t yours or that is time-barred.

Be aware that not all debt collectors are who they say they are. There are many scams in the debt collection industry, so verify that the person you’re talking to is legitimate and that the debt is actually yours.

You can — and should — also dispute any collection letter that isn’t legitimate or is time-barred.

“Collection letters now have a set format with a form option on the collection letter to dispute. If there is any doubt about the account, consumers should dispute the debt,” Creeden said. “If you are sure the debt is too old, I’ve advised my clients to send a cease-and-desist request, or have one sent on their behalf.”

File for bankruptcy

If you want to get rid of the debt and can’t pay it off, you could consider filing for bankruptcy. This will also have long-term consequences to your credit.

Consumer rights surrounding time-barred debts

As a consumer, you have certain rights regarding your old debts.

The Fair Debt Collection Practices Act (FDCPA) protects consumers from debt collectors. Under this Act, a debt collector must verify any debt upon request. They must also send written notice containing the following:

• Amount owed
• Information about how to dispute your debt
• Name of the original creditor
• Written statement saying you have 30 days to dispute the debt

If a debt collector contacts you about time-barred debts, you can also make a written request that they stop contacting you. If they refuse to do so, you can take the following actions:

• File a complaint with the Consumer Financial Protection Bureau (CFPB)
• File a report with your state’s attorney general office
• Report any problems to the Federal Trade Commission (FTC)
• Take the debt collector to state or federal court (you have one year to file a lawsuit against any collector who has broken the law)

If your debt is time-barred and a creditor tries to sue you for it, that violates the FDCPA. Even a threat of a lawsuit is a violation that enables you to legally sue them. A court could still file a judgment against you if you don’t attend a mandated court date.

The bottom line

Debts often come with an expiration date called a statute of limitations. Once that date passes, you can no longer be taken to court over that specific debt.

However, it’s possible to inadvertently reset the clock. To avoid this, refrain from making any payments, acknowledging the debt in writing or initiating any other changes to the account.

If a debt collector continues to contact you about an old or expired debt, you can agree to pay it, negotiate a new payment plan or dispute it. Since time-barred debt laws vary by state, make sure you know your state laws — and your rights as a consumer — before taking action.

Frequently asked questions

• Can a time-barred debt affect my credit score?
  

  A time-barred debt will only affect your credit score as long as it remains on your credit report. Generally, past-due accounts will stay on your report for up to seven years before naturally falling off.

• Can a collection agency open an old debt as new?
  

  A collection agency can’t report an old debt as new. If your creditor sells an old debt to an agency, the timeline simply continues from where it left off.

• How can you tell if a debt is time-barred?
  

  Ask the collection company for information on when you last made a payment and look into the statute of limitations for where you live and where you lived when you opened the debt if you have moved.