Can Collectors Collect Unsecured Debt?
Secured debt refers to debt that is attached to a physical asset, such as a mortgage loan on a home or an auto loan on a car. Unsecured debt is debt that is not attached to a physical item, such as credit card debt. If you have unsecured debt, it's beneficial to understand that a creditor has the right to collect on unsecured debt.
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Collections
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A creditor will often hire a collection agency to collect unsecured debt on its behalf. The collector then has the right, as the agent of the creditor, to pursue collection of that debt from the debtor. If the creditor sells the debt to the collection agency instead, the agency then becomes the owner of that debt and has the legal right to pursue its collection. The collector must abide by the rules and regulations outlined in the Fair Debt Collection Practices Act. Among other rules, the law restricts the hours when the collector can call you each day to between 8 a.m. and 9 p.m. and requires the debt collector to send you validation of the debt if you request it within 30 days of the collector's initial contact with you.
Significance
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If payment isn't made on the unsecured debt, the debt collector can sue you in civil court. The purpose of the lawsuit is to obtain a judgment against you. Depending upon the laws of your state, a judgment against you will give the collector the ability to seize money in your bank accounts, garnish a portion of your wages or place a lien on other property that you may own. A judgment will also appear on your credit report as a public record and can remain there for up to seven years.
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Consequences
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A judgment has its own statute of limitation as outlined under the laws of your state. This statute determines how long a debt collector can come after you for payment of that judgment. The time frame of the statute varies by state. In Washington, D.C., the statute of limitations on judgments is three years, but in Ohio the statute of limitations on judgments is 21 years. Judgments also accrue interest. The annual interest rate on a judgment in Rhode Island is 6 percent but in Michigan it's 20 percent.
Prevention/Solution
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Debt collectors can pursue you for unsecured debt but only as long as the debt remains valid. Each state has a statute of limitation on debt. Once the debt passes this time frame, you no longer have a legal obligation to pay it. This statute varies from state to state. Credit card debt, for example, has a statute of limitation of only three years in Alabama but 10 years in Rhode Island. If you're contacted by a debt collector about an expired debt, the Fair Credit Reporting Act gives you the right to send the collector a cease and desist letter, which forbids the collector from contacting you again for payment of that debt.
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References
- Federal Trade Commission; Debt Collection FAQs: A Guide for Consumers; February 2009
- Equifax: Who Can See My Equifax Credit Report?
- Nolo: Tips For Collecting Your Judgment
- Equifax: Length of Credit History
- Card Report: Statute of Limitations on Judgments
- Bankrate.com; State Statutes of Limitations on Old Debts; Lucy Lazarony; January 2004
