Can I Be Sued for a Closed Written-Off Account?

Writing off an account is merely a bookkeeping entry to indicate that the asset a company thought it owned in your debt has no value. It does not change a company's legal rights as a creditor to collect, or your obligation as a debtor to pay, an outstanding debt. Consequently, the short answer is yes, you can be sued for a closed written-off account. However, there's more to the story.

The common practice after a company writes off accounts as uncollectible is to sell those uncollectible accounts to collection agencies. Collection agencies purchase "bad accounts" at deep discounts, frequently at pennies on the dollar. Collection agencies purchase bad debts because they still have monetary value. The monetary value resides in your outstanding legal obligation to pay the debt you owe.

Once your debt passes to a collection agency, however, the collection agency must prove that you owe the debt. This is where your situation improves.

Collection agencies typically purchase computer printouts listing the pertinent details of bad debts including amounts, item(s) purchased and contact information for the debtor. Collection agencies rarely obtain the original contract that you signed, which triggered the debt. They also need evidence that the debt has not been paid.

Collection agencies often lose "contested" bad debt suits in court because they cannot produce the documentation which validates the debt according to requirements specified in the Fair Debt Collection Practices Act, § 809: Validation of Debts.

The operative word is "contested." If you do not contest a bad debt and lawsuit, which will oblige the alleged creditor to prove the debt, you stand a good chance of getting a judgment against you by default. Consequently, you must contest the suit.

There's a statute of limitations for consumer debt that varies by state. The various state limits range from three to 10 years. You can find a listing of the various state limitation online. The clock on your statute of limitations starts ticking from the time you made your last payment and resets each time you make an additional payment.

The implication is that if you're hounded by a collection agency for a moribund debt that is older than your state's statute of limitations – maybe you haven't made a payment on the debt in seven years, and your state's limit is three years – and you make a payment to keep the collector happy, the statute of limitations resets.

If your debt is past its statute of limitation date and you plan to contest it on that basis, do not make a payment. Instead, notify the court that the debt is time-barred by the statute and send a cease-and-desist letter to the collection agency to notify them, as well, that the debt is past its statute of limitations and it must abandon its collection attempts. If, on the other hand, you have included the debt in a settlement agreement or you plan to pay it in full, go ahead and make payments to get rid of it.

Do keep in mind that if you plan to contest a debt on the basis of the statute of limitations, you need to notify the court that it is time-barred. Failure to do so can work against you.

Although you may prevail in court over a closed written-off account, it's good to bear in mind that your court success does not prevent the bad debt from appearing on your credit report. Bad debts remain on your credit report for up to seven years. If you prevail in court, yet still have the bad debt on your credit report, it may be wise to consult a lawyer for help in clearing your credit report.