Check the Debt Statute of Limitation
Before You Pay Your Old Debts
It's important to know the debt statute of limitation in your state for the type of debts
listed on your credit reports, before you decide to pay any old debts. Why? Because if the debt
is beyond the statute of limitation for your state, your creditor may be prohibited from suing you to collect the debt.
In other words, if your creditor files a law suit against you to collect a debt that is beyond the statute of
limitation in your state, you may be able to respond to the court with proof that the debt statute of limitation has
expired to get the case thrown out of court.
Most states start to count the statute of limitation from the date in which your creditor first
had a cause of action (e.g. at the point they could have first brought a law suit against you).
This is usually at the point you defaulted on your loan obligation. For a credit card account,
this is usually the point in which you became delinquent in making your monthly payment.
However, it's important to note that there is a big difference between your state's debt statute of limitation and the
length of time in which a negative credit item can be listed on your credit reports per the Fair Credit Reporting Act.
Generally, a delinquent credit card account may be reported on your credit reports for up to 7 years from the
date of your delinquency. However, if your state's debt statute of limitation is 3 years, the creditor may be
barred from suing you to collect the debt, but that doesn't necessarily prohibit them from continuing to report
the negative credit item on your credit reports.
So even if the statute of limitation has expired, in some instances a good strategy to legally
improve your credit may be to contact the creditor and let them know the statute of limitation
has expired and use this as leverage to settle the debt for a significantly reduced amount.
If the debt statute has expired, the creditor knows they can no longer sue you
to collect the debt. As a result, they may be willing to accept as little as 10% of the debt
as payment in full and agree to delete the negative credit item from your credit reports as well.
However, if the creditor refuses to delete the old debt from your credit report, there may be no
benefit in paying a debt that has exceeded the statute of limitation for your state.
So make sure you check your state's statute of limitation before you pay any old debts.
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