State Politics

Do you have old debts? Worry less about some of them after Sept. 1. Here’s why

Debt Collection Fraud Call Recording

Listen to an employee of an unscrupulous debt collector trick a victim into paying by pretending to be a law enforcement officer and illegally threatening arrest and other legal action. More at https://www.fbi.gov/news/stories/illegal-tactics-resu
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Listen to an employee of an unscrupulous debt collector trick a victim into paying by pretending to be a law enforcement officer and illegally threatening arrest and other legal action. More at https://www.fbi.gov/news/stories/illegal-tactics-resu

Texas lawmakers are trying to ward off so-called “zombie” debt collectors.

They passed a bill earlier this year to push back against people who try to trick Texans into reviving old debts, sometimes known as “zombie debts.”

Now that bill, signed into law by Gov. Greg Abbott this month, goes into effect Sept. 1 — and will give new protections to some Texans.

“It prevents third party debt collectors from re-starting the clock on certain consumer debt, once the statute of limitations ends,” said Rep. Nicole Collier, D-Fort Worth, who shepherded the bill through the Legislature.

In Texas, creditors have four years after the last payment is made on a debt to take action, such as filing a lawsuit, against a consumer.

After that, debts are considered dead, but the Fair Credit Reporting Act lets those debts show up on credit reports for seven years. But even when a debt is out of statute, that doesn’t mean it has been forgiven.

Many companies write off old debts after a certain period of time and sell them to debt collectors, usually for pennies on the dollar.

Those collectors then try to collect any of the debt they can. But they generally don’t tell people that they legally aren’t required to pay back the money.

And right now in Texas, if they convince someone to acknowledge that it is their debt or make a small payment — even if they don’t know if it’s truly their debt — then the statute of limitations starts again, even if the debt had been dead.

House Bill 996, known as the Fair Consumer Debt Collection Act, puts in place some protections for consumers, Collier said.

The goal “is to make sure that dead debts do not come back to life,” said Neil Sobol, a law professor at the Texas A&M law school in Fort Worth, who testified in support of the law. “The dead debt that the Act focuses on is a debt that is time-barred because the limitations period has passed.

“Once the limitations period has passed, it is an affirmative defense to a lawsuit seeking collection of debt,” he said. “Unfortunately, under current law, a time-barred debt can be revived, and come back to life, if a debtor make a payment that acknowledges the debt.”

Last year, Texas ranked sixth — behind Delaware, Florida, Georgia, Nevada and Maryland — in a list of the top 10 states where efforts to illegally collect debts such as “zombie debts” were most common, according to a RewardExpert report.

Texas collections

Collier’s measure says debt collectors can’t sue consumers for debt after the statute of limitations has passed.

The measure also:

Stipulates that even if a person does pay on an old debt, the statute of limitations won’t be revived.

Requires any paperwork given to debtors after the statute of limitations expires must include this information: “The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it and we will not report it to any credit reporting agency. This notice is required by law.”

States that any paperwork given to debtors before the statute of limitations has passed must include this message: “The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it. If you do not pay the debt, (NAME OF DEBT BUYER) may continue to report it to the credit reporting agencies as unpaid for as long as the law permits this reporting. This notice is required by law.”

“Debt collection entities on the hunt to breathe new life back into the old/dormant consumer debt must now notify consumers through written communications at the get-go whether the debt is past the statute of limitations and that they cannot revive the debt just because the consumer acknowledges or makes a payment on it,” Collier posted on Facebook.

She noted that the bill wouldn’t have been possible without the help of Sobol and Ann Badaour, director of the Fair Financial Services Project at the nonprofit advocacy group, Texas Appleseed.

“Their expertise in the field is what helped propel this bill to the Governor’s desk and will save thousands of Texans time and money,” Collier said.

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Anna M. Tinsley grew up in a journalism family and has been a reporter for the Star-Telegram since 2001. She has covered the Texas Legislature and politics for more than two decades and has won multiple awards for political reporting, most recently a third place from APME for deadline writing. She is a Baylor University graduate.

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