In 1980, the Federal Government passed a special law which allowed national banks to ignore state usury limits and peg the rate of interest at a certain number of points above the Federal Reserve discount rate. In addition, specially chartered organizations like small loan companies and installment plan sellers have their own rules. That means that the laws in most states do not have enough teeth to regulate credit card debt. As a result, many debtors can only relieve exorbitant debt from various banking institutions by filing bankruptcy.
Credit card debt is one of the leading causes of bankruptcy, but if you are “collection proof” and you do not have enough assets for creditors to collect, you may not need to file for bankruptcy protection at all. All states have a statute of limitations on debt collection.
Statute of limitations are delineated into four categories which include: oral contracts, written contracts, promissory notes, and open-ended accounts. The latter category deals with credit card debt.
For Michigan, the statute of limitations for oral contracts is six years, and written contracts is six years (as long as you do not make payments during the time frame). The statute of limitations for promissory notes is six years, and the statute of limitations on open-ended accounts is six years. Any written acknowledgment or payment restarts the statute of limitations for the debt.
Going to court and winning a judgment against a debtor is another matter. A judgment in Michigan carries a statute of limitations of ten years. The creditor must renew the judgment before the time frame ends if they want to keep an attachment or lien alive. Partial payments do not affect the ten year limitation on enforcing or renewing judgments. Judgments normally carry a state mandated interest that will accrue until the judgment is satisfied.
Not all collection agencies play by the rules. Creditors may call you after the statute of limitation expires and try to get you to acknowledge you owe the debt. If they can get you to acknowledge your debt, and it is a qualifying debt like a credit card debt, the statute time for limitations begins new from that day forward. So, what do you do when these agents call? Ask them to send you paperwork to verify exactly what debts they claim you owe along with dates of the claimed debt. If it is debts that have passed the statute of limitations, you might want to get their mailing address and send them a cease and desist letter to stop collections. You can explain in the letter why you do not owe the amount. If they cannot verify the claim, you might want to send the collection agency a cease and desist letter anyway.
The Fair Debt Collection Practices Act (FDCPA) protects consumers by providing a fair playing field. The FDCPA states all collection agencies must verify any debts they claim you may owe. If a debt is out of the statute of limitations or is unverifiable, the collection firm is prevented from pursuing the loan in a harassing manner. Continued violations could result in fines for the violators, court, and attorney fees.
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