If debt were milk, this milk would be rotten. I am speaking about old debt, or time-barred debt. This article addresses time-barred debt, how to respond to time-barred debt, and how bankruptcy may play into the analysis.
In Oregon, we have a statute of limitations on contracts of 6 years. What this means is simple: if you have not made a payment on debt for at least 6 years and the creditor has not obtained judgment in the interim, then the creditor has no recourse against you other than to harass you with letters or phone calls. For instance, let’s say you have debt from 2005 and you have not paid on this debt since 2008, you have met the 6 year rule for the debt being time-barred. However, if you continued to make payments on this debt, every time you make a payment, the 6 years is reset that the creditor can sue you and obtain judgment.
What does this 6 years mean? The creditor has 6 years, from the time you default of make your last payment on the debt to file a lawsuit against. If a lawsuit is filed within that 6 year period and a judgment is obtained, the judgment will be good for 10 years and can be renewed for an additional ten years. BUT the creditor only has the 6 years to file a lawsuit against you from the time you default on the liability or from the time you make your last payment. If the creditor has not obtained a judgment against you within this 6 year period, then they are barred from obtaining one against you (creditor may still try – mistakenly – to obtain a judgment, but the defense would be that the debt is time-barred).
Certain collection companies, such as First National Collection Bureau, etc., from my experience have attempted to collect on time barred debt.
So, what do I do when a debt like this comes across my desk? If this is the only debt that a client has, then I can write a letter pursuant to the Fair Debt Collection Practices Act (FDCPA) requesting that the creditor/collection company shows proof that the debt is within the 6 year statute period. Often, if I send this letter, I (nor my client) will hear nothing further from the collection company. If a client comes in with other debts, including time-barred debts, we will consider bankruptcy. Should a client file bankruptcy, we will list all creditors including time-barred creditors.
If you are being harassed or receiving letters from creditors for debt from many years ago, I invite you to contact me for a free consultation. We will consider if the debt is time-barred, what remedies are available in dealing with the time barred debt, or if there are other debts present, if bankruptcy will prove a useful financial tool.