What Is Re-Aging Debt?
Re-aging debt refers to a restart of the clock on an old debt's statute of limitations. Re-aging debt can happen if a borrower talks to a creditor or debt collector about an old debt or makes a payment on one. Re-aging debt is good for debt collectors because it gives them greater legal rights to collect a debt. However, re-aging debt is usually bad for borrowers because it puts them back on the hook for paying an old debt that might otherwise be uncollectable due to the statute of limitations.
Key Takeaways
- Most debts are subject to a statue of limitations, after which the debtor can no longer be sued to collect the debt.
- Depending on the state and the type of debt, the statute of limitations is typically three to six years.
- Re-aging can reset the statute of limitations clock on a debt, giving the creditor or debt collector more time to take legal action.
- Debtors can inadvertently trigger re-aging by acknowledging the old debt or making a partial payment on it.
Understanding Re-Aging Debt
Under federal and state laws, most debts are subject to a statute of limitations. This period typically lasts from three to six years, depending on the state where you live, the state named in the credit agreement, and the type of debt involved.
Some debts are subject to longer statutes of limitations, such as federal tax debt, which generally has a statute of limitation of 10 years, referred to as the Collection Statute Expiration Date (CSED). Certain types of debts, such as federal student loans, have no statute of limitation at all.
Once the statute of limitations on a debt has expired, it is considered time-barred and the creditor or debt collector cannot take legal action, such as filing a lawsuit, to collect it. In most states, the creditor or debt collector can still make other efforts to collect, such as through phone calls or letters, as long as they adhere to the rules of the Fair Debt Collection Practices Act (FDCPA).
However, certain actions on the part of the debtor can cause a debt to be re-aged, in effect starting the statute of limitations clock back at the beginning.
Actions That Can Trigger Re-Aging Debt
Under the law in some states, re-aging can occur if the debtor acknowledges to the creditor or debt collector that they owe the debt or if they make even a partial repayment on it. When that happens, the Federal Trade Commission notes, the statute of limitations resets and "the collector might be able to sue you to collect the full amount of the debt, which may include extra interest and fees." In that event, the debtor's only recourse may be to pay the debt in full or try to reach a settlement for a smaller payment.
Re-aging can also occur, at least temporarily, when an unpaid debt is sold by a creditor to a debt collector. The debt collector may have no idea whether the debt they are purchasing is legitimate, was the result of identity theft, was paid off, was forgiven by the creditor, or is past the statute of limitations. However, if they then sue the debtor to collect, the debtor can ask a court to dismiss the suit, which it should do.
Unethical debt collectors might also illegally re-age a debt by reporting it to credit bureaus after they purchase it in the secondary market, even though they have no idea how old it is or whether any money is still owed. If this happens, the debtor can report the debt to the credit bureau as inaccurate, which should result in the debt collector having to prove the validity of the debt.
Legal experts often advise debtors not to discuss their old debt with creditors or debt collectors, so that they don't inadvertently cause it to be re-aged. However, if the debtor is sued, they should respond in court and be prepared to prove that the statue of limitations on that debt has run out.
There is one good type of "re-aging." It occurs when a borrower works out a debt repayment plan with a creditor, and they agree to stop reporting the account as delinquent. Instead, they re-age the account and report it as current, which can improve the borrower's credit score.
Does Re-Aging Debt Affect Your Credit Report or Credit Score?
No, re-aging a debt should not affect your credit report or credit score. That's because negative information typically remains on your credit report for seven years from the time a debt first became delinquent. As the credit bureau Experian explains, "The date of first delinquency never changes, which is why the length of time a negative item can appear on your credit report won't be extended. Even if you make a payment on the account or the debt is sold or transferred to a new collection agency, federal law prohibits collection agencies from changing the original delinquency date of the debt."
How Can You Find Out the Statute of Limitations on a Debt?
The statue of limitations on debt varies from state to state and according to the type of debt. For the particulars on your state, contact your state attorney general's office or check its website.
What Is the Fair Debt Collection Practices Act (FDCPA)?
The Fair Debt Collection Practices Act (FDCPA) is a federal law that governs what debt collectors are and aren't allowed to do. It also gives debtors certain legal rights, such as the right to tell the debt collector to stop contacting them. The FDCPA applies to credit cards, car loans, medical bills, student loans, mortgages, and other consumer debts but not to business debts. Many states also have their own consumer protection laws with regard to debt collection.
The Bottom Line
If you have an old debt that you don't believe you will ever be able to repay, check out the statute of limitations on debt in your state and in the state listed in your original credit agreement. If the debt is past the statute of limitations, you will still owe it but the creditor or debt collector will no longer be able to take legal action against you.
