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Charge Off, Credit Report, Statute of Limitations & Merged Creditors
Tuesday, Sep 15, 2009
Question: Can a financial institution collect on a charge-off account from nine years ago because they have merged with your present financial institution without giving you notification they will take your money?
Answer: Before I explore the issues raised in your question, we need to establish a few definitions and concepts.Charge Off
"Charge off" is an accounting term used by creditors when they move a delinquent account from its accounts receivable books to its bad debt ledger. This usually occurs between 180 and 240 days from the date of your last payment. The fact that an account is charged-off does not mean the debt may not be collected later. The charge-off date also does not correspond to the statute of limitations on collecting a debt, or the date that an entry on a credit record must be removed. All three dates or deadlines are independent of each other and have different meanings.
Because an account is charged off does not mean the creditor lacks a legal right to collect the debt. To the contrary, the creditor may move the account to its own internal collections department, or sell the debt to a third-party collection agency. At some point, and it varies by your state of residence, a debt becomes so old that it cannot be collected. This is where your state's statute of limitations comes in.
Statute of Limitations
All states have a body of statutes in their codes of law called, "Limitations of Actions," commonly referred to as the statutes of limitations. The idea behind these laws is that we as a society have decided that we don't want old debts hanging around forever -- we want people and businesses to be able to move on with their lives without worrying about being sued.
The length of time a creditor has to sue you depends on your state of residence and the type of debt. For example, many states allow longer for creditors to file suit to collect on closed-ended consumer loans than on credit card debts. Most states give credit card issuers three to four years to file suit after default, but some states allow as many as 10 years. Check out the Bills.com Collection Laws and Statute of Limitations page.
The site I just mentioned has more information about statutes of limitations and a list of limitations by state. If a creditor
files a lawsuit after the allowed time, the court will usually throw the case out and not allow the creditor to file suit again (called dismissed with prejudice).
However, you must raise the issue of expired statute of limitations in a written response to the lawsuit, or else the court will not know that the statute of limitations has expired. Although the periods vary from state to state, I believe that there is only one (Ohio) that is longer than 10 years.
Remember: The passing of the SOL does not mean that a creditor cannot sue you. It means if a lawsuit is filed you should have an absolute defense against the lawsuit if you raise the defense. Also, keep in mind that the passage of the SOL does not prevent a creditor from calling you to collect on the debt; it simply provides you an absolute defense in court if the creditor files suit.
Credit Report
The length of time credit accounts can appear on a credit report is governed by federal law, specifically the Fair Credit Reporting Act (FCRA).
By federal law, all debts must be removed from a credit report after seven years (US Code Title 15, §1681c) and bankruptcies after ten. Remember that just because a debt is removed from a credit report that does not mean the statute of limitations has passed. Federal credit report laws and a state statute of limitations laws are separate and independent from each other. Keep in mind that the seven years starts running from the date the account was charged off by the creditor, which generally means seven and a half years from the date of last payment. Review your credit report carefully to make sure that the dates of last payment being reported on these accounts are correct.
Some creditors, especially debt purchasing firms, will report inaccurate charge-off dates to extend the amount
However, you must raise the issue of expired statute of limitations in a written response to the lawsuit, or else the court will not know that the statute of limitations has expired. Although the periods vary from state to state, I believe that there is only one (Ohio) that is longer than 10 years.
Remember: The passing of the SOL does not mean that a creditor cannot sue you. It means if a lawsuit is filed you should have an absolute defense against the lawsuit if you raise the defense. Also, keep in mind that the passage of the SOL does not prevent a creditor from calling you to collect on the debt; it simply provides you an absolute defense in court if the creditor files suit.
Credit Report
The length of time credit accounts can appear on a credit report is governed by federal law, specifically the Fair Credit Reporting Act (FCRA).
By federal law, all debts must be removed from a credit report after seven years (US Code Title 15, §1681c) and bankruptcies after ten. Remember that just because a debt is removed from a credit report that does not mean the statute of limitations has passed. Federal credit report laws and a state statute of limitations laws are separate and independent from each other. Keep in mind that the seven years starts running from the date the account was charged off by the creditor, which generally means seven and a half years from the date of last payment. Review your credit report carefully to make sure that the dates of last payment being reported on these accounts are correct.
Some creditors, especially debt purchasing firms, will report inaccurate charge-off dates to extend the amount
of time an old account appears on your credit report. If you find any inaccurate information, you should dispute the credit report listing with the bureau in question. The Federal Trade Commission offers advice regarding the dispute of inaccurate credit report listings .
Merged Financial Institutions and Debt
I do not know your state of residence, so with a nine-year-old debt it is impossible for me to say with certainty that your debt is older than your state's statute of limitations. Let us create a hypothetical situation here loosely based on your facts. Let us say that you have a debt with a financial institution, you reside in a state where the SOL has expired, and the two financial institutions have not merged. If the creditor sues you, and you raise a statute of limitations defense, the court will dismiss the case with prejudice, meaning they cannot return to court to sue you again for that debt. The debt is not erased. They can continue to pester you about the debt, but they cannot sue you or threaten to sue you.
Now let us use your facts. If I understand your question correctly, your bank merged with your old creditor, your bank discovered an outstanding debt, and plundered your account without notice. As I understand the law of remedies, what your bank did was reprehensible but not illegal because the debt was never forgiven -- the creditor never released you from your obligation.
However, I hasten to say that I do not know what state you are in, and as a consequence have no way of knowing if you are shielded by state laws that protect consumers in this situation. For that reason, I urge you to consult with an attorney in your state who has experience in consumer law to review your facts.
I hope this information helps you Find. Learn & Save.
Best,
Bill
www.bills.com/blog/
Merged Financial Institutions and Debt
I do not know your state of residence, so with a nine-year-old debt it is impossible for me to say with certainty that your debt is older than your state's statute of limitations. Let us create a hypothetical situation here loosely based on your facts. Let us say that you have a debt with a financial institution, you reside in a state where the SOL has expired, and the two financial institutions have not merged. If the creditor sues you, and you raise a statute of limitations defense, the court will dismiss the case with prejudice, meaning they cannot return to court to sue you again for that debt. The debt is not erased. They can continue to pester you about the debt, but they cannot sue you or threaten to sue you.
Now let us use your facts. If I understand your question correctly, your bank merged with your old creditor, your bank discovered an outstanding debt, and plundered your account without notice. As I understand the law of remedies, what your bank did was reprehensible but not illegal because the debt was never forgiven -- the creditor never released you from your obligation.
However, I hasten to say that I do not know what state you are in, and as a consequence have no way of knowing if you are shielded by state laws that protect consumers in this situation. For that reason, I urge you to consult with an attorney in your state who has experience in consumer law to review your facts.
I hope this information helps you Find. Learn & Save.
Best,
Bill
www.bills.com/blog/
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1. Posted by Moanna Pascual on Thursday 24th September 2009 18:14
I have 2 credit cards that was closed due to the change of APR that I did not accept. What if I don't pay them what will happen. One of my credit was already closed but, they are still adding charges on the account? for overlimit fee, can they do that? Are the credits cards company can they still harrass?
2. Posted by Bill on Thursday 24th September 2009 23:41
First, read these two replies to other readers who had similar questions: "Consequences of Credit Card Default" and "Collections Agencies, Collections Laws and Your State's Statute of Limitations." Next, I recommend you review your rights under the Fair Debt Collection Practices Act and the Credit Card Accountability Responsibility and Disclosure Act of 2009.
3. Posted by Elizabeth on Friday 25th September 2009 11:10
Hi Bill-- I have one credit card that was opened in 1999 and last paid May 4, 2004-- I have received 2 calls from an attorney's office claiming that they are well w/in the SOL to file a lawsuit against me. I live in CA-- and i have checked my credit report and there is no sign of this debt being on there-- What's should I do???
4. Posted by Bill on Friday 25th September 2009 14:36
Do these six things in this order:
1) The next time the collection agent calls, ask for the agent's name, his or her firm's name, and their location. If the collection agent claims to be from a law office, ask for the name of the attorney responsible for your case, and in what state that attorney is licensed to practice law.
2) You mentioned you are in California. If the collection agent is or works for a California attorney, go to the The State Bar of California Web site and search the State Bar's member database to see if that person is actually a California attorney in good standing.
3) If he or she is a California attorney, you are in luck -- you get to file a complaint to The State Bar of California about one of its members! Explain your circumstances in your complaint, and tell them that their member violated Rule 5-100 in the Rules of Professional Conduct of the State Bar of California. This rule reads "A member shall not threaten to present criminal, administrative, or disciplinary charges to obtain an advantage in a civil dispute." I would argue that an attorney stating falsely that the statute of limitations has not tolled on your debt, and consequently has the the right to sue you for the debt successfully misstates the law . This false threat of a lawsuit is an attempt to obtain an advantage in a civil dispute. Further, I would argue that the member violates Rule 3-200, which prohibits the assertion of a position in litigation for the purpose of harassing or maliciously injuring a person.
4) If he or she is an attorney outside of California, you need to go to that state's bar association Web site and determine its rules of professional conduct. If the attorney's state follows the ABA Model Rules of Professional Conduct, he or she may have violated ABA Rule 8.4(b), which prohibits committing a criminal act that reflects adversely on the lawyer's honesty, trustworthiness or fitness as a lawyer in other respects; and Rule 8.4(c), which prohibits engaging in conduct involving dishonesty, fraud, deceit or misrepresentation. I would argue an attorney violates ABA Rule 8.4(c) when the collection agent states it will file a lawsuit against you when it seems clear that doing so would be a fruitless effort, and because court proceedings are expensive, extremely unlikely. Violating professional responsibility rules do not create a cause of action for you, but giving a detailed and factual report of a rules violation to an attorney's state bar usually creates an investigation, which may cause that attorney to modify his or her behavior.
5) If it turns out the collection agent is not an attorney, you may have a cause of action against the creditor under the FDCPA. ("Cause of action" is lawyer-speak meaning you have a darned good basis for a lawsuit.) Under 15 USC 1692e § 807(3) it is illegal for a debt collector to make a false representation that it is a law firm, and § 807(4) it is illegal for a debt collector from threatening to take any action that cannot legally be taken or that is not intended to be taken. See an attorney in your state who has experience in consumer law if you believe you have a cause of action under the FDCPA.
6) Please return here and let us know your results.
5. Posted by Angela on Sunday 15th November 2009 00:03
I had a bank account in Texas which I thought was close and payed off only to find last week it was not. Chase has bought out bank one and my current bank WaMu. Last week Chase took out over 100 from my account and when confronted I was told it was in reguards to a Bank One account I had back in 04-05. The account was payed and charged off 9/19/04. One week later they took an addition 325 out of my Chase account. It this legal? I have looked up information and it states there is a 4 yr SOL. Can they take this money unknowningly whenever they want after 4 yrs?
6. Posted by Bill on Monday 16th November 2009 10:06
The passing of the statute of limitations does not mean the debt is canceled. Also, as I state in the article above, the passing of the SOL does not mean that a creditor cannot sue you. It means if a lawsuit is filed you should have an absolute defense against the lawsuit if you raise the defense. Also, keep in mind that the passage of the SOL does not prevent a creditor from calling you to collect on the debt; it simply provides you an absolute defense in court if the creditor files suit. In my humble opinion, Chase should give its customers notice that it is exercising its right to collect on past-due accounts so that customers are not surprised when funds are missing from their accounts unexpectedly. I believe Chase has a right to collect on past-due accounts, but if it seeks the trust and loyalty of its customers it should show courtesy and gracious good manners.