How to Handle Old Debt
Once a year, it's a good idea to get a copy of your credit report to review the status. Once you have a copy, you may find some old debts that you had forgotten. Some old debt needs to be handled in a specific manner. The age of the debt will determine what action you should take, if any. When you clean up old debt, you will be able to manage your credit file more effectively.
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Instructions
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Check for any debt that you have had for 7 years or longer. If you have debt that meets this criteria, you may choose to do nothing. A debt this old should not remain on your credit report. If it does, you may want to dispute it by writing to the credit reporting agency that lists it. They should be able to get the debt deleted from your credit file. Any debt that you have not paid in 7 years should fall from your credit file automatically.
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Find out the statute of limitations on your debt. Your old debt may have passed the statute of limitations, which varies according to each state. Generally, it can range from 2 years to 15 years.
Also, note that there are four types of debt: oral, contract, promissory and open-ended accounts. Each type of debt may have a different statute of limitations. When the statute of limitations has passed, a debt collector is not allowed to sue you for the debt. They can continue to send past due notices and make phone calls but legal action is not allowed.
Be aware, however, that even though the statute of limitations has passed, some debt collectors will try to bring legal action against you anyway. If you receive a summons to appear in court, you must go if you want to win your case. Once you are in court, you just need to show the judge or referee that the statute of limitations has passed. If you fail to attend court, the creditor will receive a default judgment against you even though the statute of limitations has passed.
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Review your credit report. Make a note that even though the statute of limitations has passed, the debt could still be on your credit report if the 7-year time frame has not passed. If you are about to purchase a home, the mortgage lender will request that you pay off this debt, even though the statute of limitations has passed. The statute of limitations does not cancel the debt; it merely limits the actions a creditor may take against you in collecting the debt.
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Settle your old debt. If you need to pay an old debt, you may be able to settle for a lesser amount. A settlement is when you and the creditor or collection agency agree to pay an amount that is less than the original debt. A settlement can range from 20 to 75 percent of your outstanding balance, according to Smart Money.
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Determine if there are any judgments or collection accounts on your file. Any judgments and collection accounts should also fall from your credit report after 7 years. If they are still on your account, you can dispute them as well.
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Pay your debts. You may just decide that you want to pay your old debt, no matter how old it is. If this is the case, you may have to call the original creditor. They should be able to direct you to the collection agency that is handling your account.
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Tips & Warnings
If a debt has been discharged through bankruptcy court, you are not obligated to pay it. Some debt collectors may try to get you to pay.
Be aware that there are certain things you can do that can reactivate the statute of limitations. If you enter into a long-term repayment agreement with a creditor, the statute of limitations can be reinstated and the creditor can bring legal action against you once again.
Although this varies from state to state, if you even acknowledge that you owe the debt, it can reactivate the statute of limitations.
In some states, if you make a payment on the debt, you reactivate the statute of limitations.
