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Old Bad Debts Coming Back? What IS The Statute Of Limitations, Anyway? --plus-- Could
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Dear Ben: I have six credit cards that I had to stop paying on five years ago, with a (then) total balance of around $10,000. All of a sudden, I'm getting letters and calls from new collection agencies that have purchased the debts, and even threats of being sued. Is it just a strange coincidence that they all changed collection agencies at the same time, and can they be considering suing me? Isn't there a three year limit in which they can sue in Texas? One bill collector even said: "go ahead and send a cease and desist letter, I'll keep calling you anyway." Do they know something I don't?
---Heather, via e-mail
Dear Heather: Obviously in a perfect world you would have paid your debts in a timely manner, right? If you're like the vast majority of Americans that have found themselves in similar predicaments, I'm sure that there was some key event that caused the financial lapse: loss of job, serious/prolonged illness, divorce, etc. With that said and in an attempt to answer your questions, here's how the game is played.
Is it a strange coincidence? Probably. Most creditors age and write-off bad debts in a similar manner. Once an overdue-but-soon-to-be-bad-debt begins the voyage...from internal collection department to third-party debt collection agency and finally to the "write off pool," it's pretty normal to see them end up in a portfolio of like "bad/charged-off debts." They're sold off to companies (sometimes referred to as "bottom-feeders" or "vultures") in about the same span of time, and these companies specialize in turning bad debts into very profitable returns for their investors. By the time this class of debt reaches this level, usually 4-6 years (or more) has passed since the consumer has made a payment and the debt is clearly viewed as uncollectible. Bottom feeding investment companies pay sometimes as little as one-half of one cent for portfolios with a "face value" (total amount owed, but defaulted) of $10 million or more. If you're the new owner of this type of bad debt and have paid half a cent (on every dollar owed) but end up recovering three or five or ten cents on the dollar, it can be a pretty profitable business. In fact, it IS a very profitable business. However.....
The statute of limitations for the enforcement of most defaulted credit card debts in Texas is four years (not the three that you thought). If they fail to sue you within the four year window following your default on the account, they lose. However! They can always sue you, many years after the fact and if you fail to answer the lawsuit, they'll win by default. It's imperative to understand that if these companies do–in fact–sue you for non-payment, in order to avoid losing the lawsuit you'll need to hire an attorney to respond to the suit and ask the court to dismiss the case, citing the fact that the debt is unenforceable because it's exceeded the enforceability statute. And a "Cease & Desist" letter citing the fact that the debt is no longer enforceable, sent via Certified Mail/Return Receipt Requested should take the wind out of their threatening sails. If not, let me know and I'll unveil Plan B.
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