Timothy McCollough freely admits that he stopped making payments on his Chase Manhattan credit card in 1999. He says he did not have the means to pay after he was disabled by a head injury that cost him his job as a school security guard. But more than a decade later, McCollough, who is 52 and lives in Laurel, Mont., is still haunted by the unpaid balance, which was originally about $3,000. In 2007, he was sued a second time over the debt, and this time the suit contended that he owed significantly more: $3,816 in credit card debt, plus $5,536 in interest and $481 in legal fees. As he did the first time, McCollough sent a handwritten note to the court explaining that the statute of limitations on the debt had passed. 'I have had no dealing with any credit card in 8 1/2 years,' he wrote. 'The pain they caused is worth more than the money they want.' In most states, it is legal for collectors to pursue out-of-statute debt, as long as they do not file a lawsuit or threaten to do so. But some lawsuits are filed anyway, and consumer groups and even some industry consultants argue that collectors routinely harass debtors for unpaid balances that have exceeded the statute of limitations. In some cases, collectors have unlawfully added fees and interest. 'It's so cheap, if you can work it smart, you don't need to collect that much,' said John Pratt, a consultant to the debt-buying industry and an author of 'Debt Purchasing: An Investor's Guide to Buying Debt' (Morris Publishing, 2005). He said investors in old debt generally hoped to recoup 2 1/2 times what they paid for a group of claims. In a report issued July 12, the Federal Trade Commission called for 'significant reforms' in the debt collection industry and recommended that states change the murky laws that govern out-of-statute debt. The statute of limitations for debt varies by state, generally from three to 10 years. In many states, collectors can restart the clock if they can persuade the consumer to make even a tiny payment toward the old debt. The FTC, in its report, recommends that states make sure the statute of limitations for outstanding debt is clear and that collectors filing a lawsuit be required to prove that the debt is not out of statute. In addition, the agency recommends that states require collectors to tell consumers that they are not entitled to sue on out-of-statute debt and that making a partial payment revives the entire liability. The debt collection industry has undergone a transformation in the past decade. Credit card issuers, health care providers and cell-phone companies now routinely sell debt that they deem uncollectible to debt buyers, who then either try to collect it themselves, turn it over to a collections law firm or sell it again. 