Statutes of Limitations and your debts

John Dickinson, director of DebtX Mediation Services

Do you have a niggling, nagging long-term debt, and you’re wondering how long the debt collectors will chase you for it?

Let’s take a look at the Statute of Limitations and how it relates to debt mediation.

The Statute of Limitations is a passage of law that limits the time that a creditor has to recover a debt. In most cases, for what is known as a “simple contract” (which covers debts such as credit cards and personal loans), this is six years.

This six-year period commences from the time an account becomes overdue. If a borrower makes a payment towards the debt or acknowledges the debt in writing, this six-year term will restart. 

Short of this, if a debt is not recovered within this timeframe then the credit provider may lose their ability to recover the debt, with some exceptions.

What is interesting about this is that even if the borrower talks with the credit provider or debt collection company, this may not in itself constitute acknowledgment. This is one reason why debt collection companies, in particular, will try very hard to have the borrower make some sort of payment towards the debt, as they know that once this happens, the Statute period resets.

It is common for debt collection companies to purchase older debts. This is because in general terms, the older the debt the less they will pay for it. With newer debts costing between 30 to 40 cents in the dollar, older debt can often be purchased for as little as 10 to 15 cents.

Ultimately, debt collection companies try not to purchase debt that is too close the Statute period, as it is illegal to continue to pursue debt that is subject to this Act. This doesn’t always stop people trying though.

If you are approached by a collection company for a debt that you feel could be more than six years old, it is well worth asking the question: how is this debt not subject to the Statute of Limitations?

Even if the debt is just short of this period, you may find you have the power to discount the debt significantly.

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