California residents who are being contacted, or even harassed, by collection agencies about old debts may want to consult with a bankruptcy attorney about their rights. Sometimes, the collectors do not even have the right to sue for these debts, and if you make a payment the debt may be renewed, allowing them to keep collecting.

Creditors and debt collectors have a limited time window in which they may sue debtors for nonpayment of bills, and the federal government is concerned that collectors are going after debt that is past the statute of limitations. In California, generally, creditors and debt collectors may only sue debtors for nonpayment of bills that are not more than four years old.

If a debtor sues you to collect debt that is time-barred, you can often have the suit dismissed in court. However, many consumers are not aware that their debt is too old to be collected, nor are they aware that many states allow the clock to reset if the debt is acknowledged with a payment.

Recently, one of the nation's largest consumer-debt buyers paid to settle a lawsuit from the Federal Trade Commission that alleged the collector was using deceiving tactics to collect old debts.

The FTC argued that the Michigan-based collection agency violated the Fair Debt Collection Practices Act and the Fair Credit Reporting Act when it failed to tell consumers their debts were too old to be enforced. The FTC also said that the company did not tell consumers that if they made any payment at all on an old debt, it may re-set the statute of limitations.

Furthermore, the FTC claimed that the company may not even be able prove some debts, and provided inaccurate information to credit reporting agencies. This may be because, often, when a debt collector buys a debt from a creditor the records are not transferred well. This means that the debt collector sometimes has very little documentation about what may or may not be owed.

The creditor has not admitted guilt but did agree to a settlement. The creditor has agreed to tell consumers it will not sue for time-barred debts, even if a partial payment is made.

The FTC may release a report this summer about the collections industry to address some of these issues regarding old debts. In the meantime, those who are being pursued by collectors should make certain that they understand their rights.

Source: Washington Post, "Have old debts? Read up on your rights," Michelle Singletary, Jan. 31, 2012

Source: Creditcards.com, "State statutes of limitation for credit card debt," Connie Prater, Dec. 12, 2011