The debt didn't go away?

I have been receiving a lot of calls lately about write-offs. Some people are wondering why they are still receiving calls from collectors if the debts were Written-off. There is actually an old 80’s Sitcom – The Jerry Springer Show - that mock’s George’s lack of understanding of the term. However, many consumers also appear to be confused about the difference between the statute of limitations and a “write-off”. Often when a bank decides to clear its books of older debts that it feels are not collectable they “write them off” in an effort to clear their balance sheets. Typically this will eventually be reflected in a consumer’s credit profile/report. In its most basic form a write-off is only an accounting term. It accomplishes nothing to extinguish the underlying debt. Regardless of whether the debt was written off or not, the legal contract that created the obligation still remains. Thus, even if your credit report states that the debt is written off Debt collectors can continue to attempt to collect the debt. This is because the legal obligation remains in place while the accounting aspects of the debt have been adjusted by the original creditor to account for, what they fell to be, uncollectable debt. Typically this is right about the time that the debts are sold to third party collectors – thus, if your phones are starting to ring with new collection companies calling then your credit profile might have some new changes to it. You should always check this – you never know who these things go to….

The statute of limitations on the other hand is a legal fiction that limits the time in which an action can be commenced in a court of law. This could vary depending on the nature of the suit. There are also various different statutes for different things. Each State has its own set of laws when it comes to this. Likewise, for Federal issues the Congress can set statutory limitations in this respect. For example, the statue of limitations for an oral contract is typically much shorter than that for a written contract. The underlying premise for the Statute of Limitations is to limit the amount of time that a legal proceeding can be commenced. There are varying ideas behind why these are necessary but usually, from an evidentiary standpoint, they are a good idea so that an aggrieved party will take action while the evidence / recollection of events, is still fresh. This helps the courts avoid having to piece together an issue and determine facts and events that may have occurred many years earlier – people forget things, witnesses disappear, this is just a fact of life.

Under the FDCPA, the statue of limitation is one year. This means that if you want to bring an action under the FDCPA against a debt collector you have to commence that action within one year of the actual event. Thus if someone threatened to break your legs if you don’t pay a debt on November 1, 2009, then you would have to bring suit (for harassment under the FDCPA) against that person by November 1, 2010 in order to capture that phone call within your complaint. The same thing applies for repeated telephone calls. If a company is “constantly and continuously” calling you for a period of two years, and you decide to file suit at the end of the second year, then you will not be able to rely on the initial calls that took place during the first year. Should one file a suit against someone beyond the statute of limitations the defendant would have a complete defense to the action based upon the Statute. There are some exceptions to this of course – something known as tolling. Basically tolling is when some event or action by the parties tolls (extends) the time in which the suit can be brought and remain legally actionable. In some situations, a subsequent promise to repay a debt will toll the statute of limitations as to when the collector’s can file suit. Remember your mother – be careful of what you promise!

The bottom line is basically this; the debt didn’t go away simply because it was written off. The banks are simply playing with their balance sheets trying to make things look better for their respective shareholders. The legal obligations remain on these old “write-offs” and collection companies can continue their efforts regardless of the manner in which it is listed in your credit report. Hopefully this will clear up at least a little of the confusion that is out there in this regard.