At some point, almost everyone has overdrawn a bank account by mistake. Once an overdraft occurs, the individual must not only reimburse the bank for the overdrawn amount but also for any overage fees the bank charged for honoring checks and debits on the empty account. If the overdrawn account balance goes unnoticed and the owner of the account continues to make purchases, he may end up with a significant amount of bank account debt.
According to the Office of the Comptroller of the Currency, a division of the U.S. Department of the Treasury, there is no federal limit to the amount of fees a bank may charge after an overdraft .Thus, depending on a bank's policies, a consumer may end up with hundreds of dollars or more in bank account debt before he even recognizes that a problem exists. Banks usually collect debts owed by immediately withdrawing the amount of the debt from any deposits the debtor makes into his bank account. Should the debtor switch banks or fail to make any additional deposits, the bank will initiate collection activity, including hiring a collection agency or suing the debtor.
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Debts on consumer bank accounts aren't secured by any property and thus are unsecured debts. Each state regulates how long an unsecured debt remains active before being time-barred. This time period is known as the statute of limitations. The statute of limitations prohibits a creditor from legally enforcing the debtor's obligation to pay the debt beyond the state-mandated time frame. Both banks and collection agencies collecting for banks must adhere to the law when attempting to collect bank account debts. The statute of limitations only applies to lawsuit enforcement--not standard collection activity such as telephone calls and letters.
A bank or the collection agency it hires may still file a lawsuit against a consumer for a bank account debt beyond the statute of limitations. Should this occur, the debtor must notify both the court and the creditor that the debt is older than the statute of limitations for his state and therefore not enforceable. If the debtor fails to use his state's statute of limitations as a legal defense, the creditor may still win the lawsuit against him and use legal force to collect a time-barred debt.
Many individuals confuse the statute of limitations with the amount of time a debt may appear on their credit reports before being removed by the credit bureaus. The length of time bad debts can be reported within credit reports is the "reporting period" and is mandated by the federal government via The Fair Credit Reporting Act (FCRA)--not a debtor's state. According to the FCRA, unsecured debts that a consumer fails to pay, such as a bank account debt, may remain within his credit file for up to 7 ½ years from the date the debt was incurred. The federal reporting period has no bearing on the statute of limitations for legal enforcement of the debt.
If a debtor makes a payment to the bank or the bank's collection agency toward the amount he owes, the statute of limitations in some states can immediately reset. This is because the statute of limitations is regulated by the date of the individual's last payment, not the date the debt was incurred like the federal reporting period. Thus, if a debtor's state prevents a debt from being legally enforceable after four years and the debtor makes a payment after three years, the creditor may have the right to sue the individual for seven years rather then merely four.
- U.S. Department of the Treasury: Answers About Overdraft Fees and Protection
- NOLO: Time-Barred Debts--When a Collector Cannot Sue You For An Unpaid Debt
- NEDAP: Debt Collection Basics
- The Federal Trade Commission: The Fair Credit Reporting Act (section 611)
- BCSAlliance.com: State Statutes of Limitation on Debt Collection
- HelpManageMyDebt.com: Defending Consumer Debt Lawsuits