What Is Re-Aging Debt?
Re-aging debt occurs when there is a restart on the clock on an old debt’s statute of limitations. Re-aging debt can happen if a borrower talks to a creditor about an old debt or makes a payment on an old debt. Re-aging debt is good for debt collectors because it gives them greater legal ability to collect a debt. However, re-aging debt is usually bad for consumers because it puts them back on the hook for paying an old debt that might have had an old statute of limitations.
- Re-aging debt occurs when there is a restart on the clock on an old debt’s statute of limitations.
- Often, unpaid debt can resurface if a creditor contacts a borrower about repaying an old debt, or if unpaid debt gets bought and sold by debt collectors in a secondary market.
- The age of a debt matters, and depending on the statute of limitations can be anywhere from three to 10 years typically. After this period, a creditor cannot sue for an unpaid debt.
Understanding Re-Aging Debt
For starters, if a creditor contacts a borrower about repaying an old debt, it may be best for the borrower not to say or do anything until they find out whether they still legally owe the debt. If they accidentally re-age the debt, they could become responsible for paying something that was past the statute of limitations or that they previously had discharged in bankruptcy or settled with a creditor. The borrower could have to prove they are not responsible for the debt while also trying to make sure the creditor does not report the unpaid debt as delinquent.
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Other Causes That Trigger Re-Aging Debt
Re-aging debt could also happen because old, unpaid debt gets bought and sold by debt collectors in a secondary market. These collectors often 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.
The reason the age of a debt matters is because of the statute of limitations. This period typically lasts from three to 10 years, depending on the state of jurisdiction that applies to the debt and the type of debt. Once this period is up, a creditor cannot sue a consumer for an unpaid debt. If the debt is acknowledged, however, the borrower may have to pay the debt in full or reach a settlement. This is why it's recommended that when in doubt, a borrower does not pre-emptively act to acknowledge a debt before confirming if it is a valid debt to collect on.
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 money is owed. If this happens, a borrower 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.
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.