Each state has what is called a “statute of limitations” for the purposes of collecting debt. This is essentially a timeclock that a creditor or debt collection company has to file a legal complaint against a person that owes a debt to it. Normally, the timeclock starts ticking on the date of last activity for the account. However, the time limit varies by each state, with some states allowing for debts to be collected three, five or seven years from this date or other amounts of time depending on the state law.
Technically, debt collectors can only collect debt when the timeclock has not expired. However, some may still attempt to collect this debt after the timeclock runs out in hopes that the debtor is not aware of his or her rights. Many debtors fail to respond to a notice that they will be sued if they do not pay off the debt and the debt collector may be able to get a judgment if the debtor does not assert his or her rights.
It is important for debt management companies and advisors to explain to their clients the importance of not restarting the timeclock. Simply making a payment or even a promise to pay is enough to restart the timeclock. Other actions that can cause the timeclock to be restarted include entering into a payment agreement or making a new charge on the account.
The expiration of the timeclock can prevent a collector from obtaining a judgment against the debtor, but it does not prevent the debt from being reported on the consumer’s credit report. It also does not completely erase the debt.