With Halloween nearly here, many people are undoubtedly looking over their shoulder after watching too many horror films and letting their imaginations take over. As it turns out, however, many Americans may have far more pressing concerns than just vampires and other movie ghouls. According to financial experts, the real concern for many people should be the possible development of bad credit and/or the emergence of so-called "zombie debt."

In general, debt collectors have only a limited amount of time in which they may seek to collect debts, judgments or garnishments under both state and federal law. However, a simple mistake by a consumer can inadvertently restart the clock, meaning debt that was once extinguished can remerge - hence the term zombie debt.

Today's post - the first in a series - will briefly examine some tips/points offered by financial experts to help consumers avoid resetting the debt clock.

The two debt clocks

According to financial experts, there are two types of so-called debt clocks:

1.) The debt collections clock: Typically, debt collectors are subject to a statute of limitations on collections, meaning state law dictates that after a certain amount of time, they may no longer seek to collect on debts owed. In general, most states statutes of limitations span anywhere from three to six years, however it's higher in some states.

The debt collections clock is the primary concern for those seeking consumers to avoid zombie debt.

2.) The credit report clock: This clock starts ticking exactly six months after you stop making payments and has a seven-year deadline. Consequently, no matter when a past debt materializes on your credit report, it must be removed seven years after the clock started ticking.

The credit report clock can't be reset by anyone.

Remember your default date

As stated above, a debt must come off your credit report exactly seven years after the original default date. (The Fair Credit Reporting Act strictly prohibits debt collectors from simply changing an account number or re-aging the debt in order to try to collect).

Consequently, financial experts advise that it pays to be informed as to the exact date of your original default.

It is worth noting that judgments are subject to their own seven-year deadline.

Consequently, while the original debt and collection attempts by creditors must come off your credit report within 7 years of the default date, a judgment against you for the balance of the debt is subject to a separate seven-year deadline (or until it expires).

Take care when discussing old debts

According to financial experts, a consumer can easily restart the debt collections clock if they acknowledge that the debt belongs to them.

"I think the primary thing - the surprising thing - is that [consumers] can restart the statute of limitations so easily," said Robert Hobbs, deputy director of the National Consumer Law Center.

Interestingly Hobbs and other experts advise consumers to remain purely hypothetical when discussing old debts with debt collectors. For example, "I don't think this is my debt, can you please tell me more about it?"

To be continued ...

Stay tuned for more from our San Antonio bankruptcy blog ...

Contact an experienced legal professional to learn more about managing credit card debt/bad credit and fighting creditor harassment.

This post is for informational purposes only and is not to be construed as legal or financial advice.

Source:

Fox Business, "Will payment on an old debt reset the clock?" Oct. 21, 2011