I have $1,000 in credit-card debt. Will I be able to hide my inheritance from the bank?

Worried 

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Dear Worried,

If you forget about a debt, that’s on you.

It’s not the credit-card company’s fault that you forgot about it. It’s not their job to pick up your bad debt because you got busy with other parts of your life: working, seeing friends and perhaps taking vacations. It’s nice to have credit, but that money comes from somewhere — and it shouldn’t come from other people’s pockets: shareholders, consumers who pay interest rates or employees.

So my recommendation to you is to pay that $1,000 debt after you receive your inheritance. Rather than negotiating with the credit-card company — something people do when they don’t have money to repay their debt — embrace paying your debt with the same willingness and gusto as you are embracing collecting your inheritance.

Credit-card debt is unsecured, so even if a credit-card company did check property records, which it is unlikely to do for a $1,000 debt, it would have no legal power to force you to put a lien on this property to pay your debt. A company could, in theory, take you to court and force you to pay this debt. That too seems unlikely.

Hit to your credit score

The biggest price you will pay is one you have already paid: a hit to your credit score for this unpaid debt. So if you are not a homeowner, you just got lucky with this inheritance, because it would be difficult or expensive for you to get a loan, given the fact that you have had a bad debt hanging over your head these five years.

Speaking of that five-year period, the statute of limitations for credit-card debt varies, based on where you live, from around two years to 13 years. InCharge Debt Solutions, a nonprofit based in Orlando, Fla., has a list of states and their statutes of limitations for different kinds of debt — written, oral, promissory notes and open-ended credit (the kind you have).

More than two dozen states have a statute of limitations of five years or less — including Alabama, Alaska, California, Delaware, Florida, Missouri, Montana — so you may be free and clear from a legal point of view. But here’s the interesting twist: In most states, the clock starts on the day you made the last payment, so if you pay $1 this week, the clock starts again.

Showing up in court

“If, at any time in between, you got tired of debt collectors harassing you and decided to make just one payment or sign an agreement to make a payment, the clock could start again on that date,” InCharge Debt Solutions says. “Check the laws in your state to find out how long the statute of limitations applies and whether payment of any kind restarts the clock.”

In most states, debt collectors can attempt to collect debts even after the statute of limitations has expired, according to the Consumer Financial Protection Bureau. “They can try to get you to pay the debt by sending you letters or calling you as long as they do not violate the law when doing so. They can’t sue or threaten to sue you if the statute of limitations has passed.”

But there is a catch: If you are sued after the statute of limitations has expired, you should still show up in court. “A lawsuit filed after the statute of limitations expires is a violation of the Fair Debt Collection Practices Act,” the CFPB notes, “but a court may still award a judgment against you if you don’t show up and raise the statute of limitations as a defense.”

To quote a game-show host, the choice is yours.

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You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter. 

The Moneyist regrets he cannot reply to questions individually.

Previous columns by Quentin Fottrell:

‘I’ve no interest in investing more money in the stock market’: I’m debt-free, retired and ignoring the ‘Trump bump.’ What should I do with $400,000 in cash?

‘The gardener talked’: My grandmother gave her next-door neighbor $6,000 to buy a car. How can I protect her?

I inherited $200,000. One of my daughters is married with kids, but the other has debts. Do I split my windfall 50/50?

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