Charge Off, Credit Report, Statute of Limitations & Banks

I stopped paying a creditor 9 years ago. My bank just merged with them and collected the amount due. Is that legal?

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Bill's Answer: Answered by Mark Cappel

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 do not 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 Collection Laws and Statute of Limitations and How to Tell Which Statute of Limitations Applies to Your Situation pages.

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.

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Fair Credit Reporting Act

Federal law (US Code Title 15, §1681c) controls the behavior of credit reporting agencies (CRAs). The specific law is called the Fair Credit Reporting Act (FCRA). Under FCRA §605 (a) and (b), an account in collection will appear on a consumer’s credit report for up to 7½ years. To determine when an account will be removed by the CRAs (TransUnion, Equifax, and Experian and others), add 7 years to the date of first delinquency. The date of first delinquency is shown in credit reports. Subsequent activity, such as resolving the debt or one debt collector selling the debt to another collector, is irrelevant to the 7-year rule.

Some debts have a reporting period longer than 7 years, including:

  • Tax liens: 10 years if unpaid, or 7 years from the payment date
  • Bankruptcy: 10 years from the date of filing (15 U.S.C. §1681c)
  • Perkins student loans: Until paid in full (20 U.S.C. §1087cc(c)(3))
  • Direct and FFEL loans: 7 years from default or rehabilitation date (20 U.S.C. §1080a(f)(1) and 20 U.S.C. §1087e(a)(1))
  • Judgments: 7 years or the debtor’s state statute of limitations on judgments, whichever is longer

The FCRA 7-year rule is separate from state statutes of limitations for debt issues. Learn the lifespan of a judgment in your state at the Statute of Limitations Laws by State page.

The start of the 7-year period begins at the date of first delinquency, or if no payments are made, when the first payment was due. Review your credit report carefully to make certain the dates of first delinquency are reported correctly. Unscrupulous collection agents reset the date of first delinquency to stretch out how long a derogatory account appears on consumer’s credit report. This is illegal under the FCRA.

Just because a debt does not appear on a credit report does not mean the statute of limitations for the debt has passed. The opposite is also true: The passing of a state statute of limitations on a debt does not mean the debt may not appear on a credit report. The federal FCRA and state statutes of limitations are separate and independent of each other.

Whether a debt appears on a credit report does not establish legal liability for the debt. The opposite is also true: You may have legal liability for a debt not reported to the credit reporting agencies. Credit reports are not legal records of every debt a person owes.

If you find any inaccurate information on your credit report, you should dispute the credit report listing with the bureau in question. See the Federal Trade Commission document FTC Facts for Consumers: How to Dispute Credit Report Errors for more information.

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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.

Your Facts

Now let us look at 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.



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Comments (67)

Verinia M.
Deer Park, IL  |  March 30, 2014
Regarding HELOC - did not pay more than a year. Currently receives letter with the order of paying from 3 different Collection Agencies. Can I ask them to provide; 1.Letter from original creditor who is legally authorized to collect debt. 2.Copy of direct contract between this collection agency and original creditor 3.Copy of cancelled check from collection agency to the original creditor. 4. Is the debt assigned or sold to this collection agency. Can I send also letter to the Original Creditor with same question? Can I ask if the original creditor took tax credit or compensation for this debt?
March 31, 2014
Your first step is to request a debt validation from each collection agent that tries to collect the debt. Follow the hyperlink just mentioned for detailed instructions on how to request a debt validation properly. That page also describes correct validation, and what you can do if the debt is not validated according the FDCPA.

The information you mentioned in your comment may or may not be relevant should you decide to file a lawsuit against the collection agent or original creditor. Consult with a lawyer if you believe you have a cause of action against the collection agent or original creditor.
Kay D.
Merced, CA  |  March 09, 2014
The questions I have are in regard to my auto loan back in 2009. We had the loan with Chase Auto Finance. The account was current when we were involved in an accident. The other party being determined to be at fault, and the vehicle was totaled. They put out a repossession order and repossessed the vehicle from the towing yard it was being held at prior to the next payment being due. Long story short it was hell trying to get the claims adjusters access to the vehicle and we ended up just using the photos I shot at the scene which showcased the damage. We owed $6,400 on the loan and the responsible party's insurance was set to pay $8,600 (determined value of the vehicle) plus the storage and towing costs on top of that. We looked forward to receiving the leftover funds in order to purchase a new vehicle. However Chase kept the entire $8,600 + and still called it a charge-off and sent me a bill for $117. I don't know if there's anything I can do at this point but they strong armed us and I want them to answer for it. Please let me know if there's any recommendation or information you can provide. Or if the statute of limitations has passed.
March 27, 2014
Consult with a lawyer in your state to learn if your state's statute of limitations would prevent you from filing an action against Chase.
Christine C.
West Valley City, UT  |  March 03, 2014
My ex-husband purchased a car in 2002 (I was co-signer). In 2003, he totaled it. The insurance company only paid half of what was owed, and we were stuck with the rest. We separated and divorced soon after that, and the debt was charged off. The debt was then purchased by a collection agency in August 2008, and they sent me something in writing saying that I owe this delinquent amount. How does the statute of limitations work in this situation? I know it's 6 years where I live, but what date do I go by? The original debt date, or when the collection agency purchased the debt in August 2008? I'm terrified to respond to them in any way for fear of triggering collection or lawsuit. My ex husband went bankrupt with his new wife a few years ago and included this debt in his bankruptcy which is now discharged, so essentially I think I'm stuck. What date do I go by? How do I respond?
March 10, 2014
Talk to a lawyer in your state of residence who has consumer law experience. It's unclear to me exactly when the statute of limitations clock would start in a situation like yours, and may be a matter for debate between you and the creditor(s).
Torrance, CA  |  November 22, 2013
I live in California, in 2008, my checking account with a bank incurred a few overdraft & return fees that I discussed with a bank officer that those should be taken off because they are not authorized and they were "refunded" and the bank sent me a statement outlining the refunds and charged off $79.97. I did not pay the charge off amount as I was unemployed at that time and did not have the money to do so. I recently pulled my credit report, now that i am ready to fix my credit because i got a job. The bank that closed the account was acquired by another bank in 2009. The new bank is reporting this account in my credit file with a balance of $500 as an OPEN UNSECURED LOAN. What can i do?
November 22, 2013
The debt appears to be older than California's statute of limitations for contracts. Therefore, if the successor in interest (the new bank) files a lawsuit against you, consult with a California lawyer about filing a motion to dismiss based on the statute of limitations defense. You must take this action: Do not expect the court or someone else to raise this defense for you.

Regarding the wrong amount appearing as a debt on your credit report, file a dispute with each credit reporting agency reporting the error. There are three consumer credit reporting agencies, so you may need to file three disputes if all three credit bureaus publish this error.
Anita H.
B/o Lansdale, PA  |  October 24, 2013
I have an account that charged off in 2012. I disputed the information being reported because I actually due to my spouse losing his job stopped paying on the account in 2011 and so the actual charge off should have occurred in 2011. According to Experian the creditor verified the accuracy of the information they had originally provided on October 2, 2013. Therefore, the reporting on my account stayed the same. Then on October 20th suddenly the same creditor reports a charge off to Experian for exactly $1 more than the balance that has been reported for over one year. My score suddenly dropped 60 points. Is it legal for a creditor to charge off an account more than once?
October 25, 2013
Under the Fair Credit Reporting Act, the FCRA's 7-year clock for how long a derogatory can appear on a consumer's credit report is the date of first delinquency. All other dates, such as the date the account was written-off/charged off, or when the collection account was sold by the original creditor, or when one collection agent sells the account to another are irrelevant to the 7-year clock.

It is common for unscrupulous collection agents to monkey with the date of first delinquency. It is unclear from your message if that's the case here. It is unclear because credit reports may display other dates, such as the date of charge off. However, these other dates have no bearing on the date you need to make sure is accurate, namely the date of first delinquency.

The credit score models lenders use — FICO and VantageScore — are proprietary and therefore we do not know if FICO or VantageScore pay any attention to charge-off date.

You mentioned your credit score dropped 60 points when either a second derogatory appeared on your credit report, or the amount changed. If a second (bogus) derogatory appeared, then it's understandable your score would drop. If the only change was the dollar amount, then it's possible the debt amount bumped you up from one "bucket" amount to another, or the score drop was a coincidence.

Charge-off/write-off is an accounting term and this action is not defined by federal or state law. The closest thing to a rule we can find is an FDIC policy. The FDIC's "Uniform Retail Credit Classification and Account Management Policy" sets a recommended number of days a bank should wait before writing-off/charging-off bad credit card accounts. This varies from 90 to 180 days, depending on various factors.

Charge-off/write-off is the point where the lender must no longer consider the account current, and should consider it a bad debt. A creditor reporting to the consumer credit reporting agencies it is writing-off an account more than once is nonsensical, but not contrary to any law we know of.

As mentioned at the beginning of my reply, is the date of first delinquency on this derogatory account correct? Focus on that date, and dispute the account if it is inaccurate.
Ty S.
Naperville, IL  |  October 12, 2013
I co-signed on an auto loan for my ex-husband in 2005. In 2011, the bank charged off the loan for $600 due to my ex-husband defaulting on a couple of payments. I did not know this until I checked my credit report in 2012, which showed a charge off from the bank. However, my ex-husband does not show this on his credit. I do not recall the bank notifying me of the defaulted balance, prior to them charging off the loan. I would like to know what are my rights to having this removed, if possible, from my credit report because as the "primary" signer wasn't the bank suppose to have informed me before taking action to place this on my credit report? This has a negative impact on my credit score. I currently reside in Illinois.
October 16, 2013
The lender should show the default on both co-signers' credit reports. The fact that it shows up on yours and not the other co-signer is further evidence credit reports are not accurate. There's no, "If a co-signed loan shows up on only one co-signer's credit report, it can't appear on the other's report either," rule. Here, just because a screw-up somewhere benefits your co-signer, doesn't give you the right to ask for the derogatory to be removed from your report.

You asked if creditors have an obligation to give a co-signer notice of an impending derogatory appearing on their credit report. The answer to that question is no. What you suggest is perfectly reasonable. Why didn't the auto lender here send you a notice the loan payments were late. The lender failing to badger you was a missed opportunity to make the loan current.

What can you do? The lender here was lazy and didn't exercise its right to pester both co-signers when payments were due. But there's no law against a creditor sitting on its rights. You can try to file a dispute with each credit reporting agency publishing this derogatory. But the information is accurate — galling but accurate — and do not expect the creditor to allow the derogatory to be removed, especially if the debt is unpaid.
Mike F.
Portland, OR  |  October 10, 2013
My bankruptcy started on May 2007 and ended in July 2012 with a discharge. I qualified for a loan modification and was approved for my 1st mortgage. My 2nd mortgage was just charged off in July 2013 to their collections= Beneficial. I thought that the trustee was paying on it and it was overlooked. Now Beneficial tacked on another $30 grand to my original $40 grand and that's what I owed. But now its been charged off. What do I need to do? Does SOL work in this situation. I live in Oregon. Need advice?
October 10, 2013
Consult with your bankruptcy lawyer about this matter immediately. The trustee may have some liability for this oversight if indeed it was an error on his or her part, or perhaps there was a miscommunication between the trustee and the lender about the loan's status. Or, perhaps the loan was discharged and the lender is now trying to collect from you in a manner contrary to the bankruptcy code.
Mike F.
Portland, OR  |  October 10, 2013
Would the statue of limitations take affect if its over 6yrs? since the last payment? Should i negotiate with the lender at a percentage? I called the lender and he said how would I like to pay this loan. I told him I will get back to him later. what would you recommend? I barely keeping up with my first mortgage and bills.
October 11, 2013
I do not know how Oregon courts interpret Oregon's statute of limitations regarding home loans. Consult with either your Oregon bankruptcy lawyer or a lawyer who has experience in litigating mortgage issues to learn which statute of limitations applies.

Were it me, my first stop would be at my bankruptcy lawyer's office to discuss the status of the junior loan. Why was it not discharged in your chapter 13? Do you need to petition the court to reopen your bankruptcy? While you are in his or her office, ask how you should handle the junior lender's collection attempts. Make no payment, or written promises to pay, until you learn answers to your questions.
Grant D.
Studio City, CA  |  December 10, 2012
I had a car repossessed back in May of 2006. I struggled to make payments during the term of the lease and the account went from delinquent to paid up multiple times before finally lapsing and leading to the repossession. What date would be used to determine when this will fall off my credit report? You mentioned that "the start of the 7-year period begins at the date of first delinquency". Would that mean the first time I missed a payment (in early 2005 and thus past 7 years), or since the account was late then paid up multiple times the last time it first went delinquent leading to the repossession (in February of 2006 meaning I'm stuck with this on my report until next year)? Thanks in advance for your help!
December 10, 2012
FTC staff attorneys used to publish questions and answers about the Fair Credit Reporting Act. Clarke W. Brinckerhoff's letter to Jeff Kosmerl has a fact pattern similar to yours.

Staff Attorney Brinckerhoff states then when an account has multiple delinquencies, the date of first delinquency begins on the date when the account becomes continuously delinquent. Subsequent remediation, and then delinquencies are not significant under the FCRA's Sections 605(c)(1) and 623(a)(5).
Eileen R.
Tampa, FL  |  October 10, 2012
I went to my child's doctor appointment and was called back before being seen and before my child's chart was put in the doctor's bin. I was called to the check-out area where I'm presented with a simple sheet of paper stating my balance and date of service leading back to 2001. I need to, A: Make full payment; or B: Use their phone to call and set up a payment arrangement. If I choose neither then I will not be seen and/or my child will be discharged as a patient. My question is, can I be forced to pay a bill with no exact explanation other then your insurance didn't pay? For a bill over 11 years old?
October 10, 2012
Yes, a service provider or merchant can condition their doing business with you on your paying an old debt.

Was it rude for the medical office to call you out they way they did? I think so. Should the office alerted you to the existing balance when you made the appointment? In a perfect world, yes. But there is no requirement a medical provider or anyone else forgive and forget an old debt, unless a bankruptcy is involved.

My advice? Negotiate a settlement to this medical debt.
Zachariah C.
Alvin, TX  |  September 15, 2012
I have a motorcycle that was charged off about 8 years ago. can i get the lien holder taken off of the title? the debt has been sold about 6 times now and the original lien holder has no paperwork about the vehicle or the amount owed anymore. they creditors that buy the old debt dont contact me either. can i take the lien holder off my title and can i get the debt taken off of my credit report also? by the way I live in texas.
September 17, 2012
Two issues in play here:
  • See the resource Bonded Title to see if this procedure applies in your situation.
  • Under the FCRA, the derogatory on your credit report should no longer be reported 7½ years after the date of first delinquency. If, as you mentioned, the date of first delinquency was 8 years ago, this bad mark should no longer appear on your credit report.

My advice? File a dispute with the credit reporting agencies that publish the derogatory information in question.

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