- A derogatory entry on a credit report can appear for 7 1/2 years.
- The rules for credit reports have no relationship to a state's statute of limitations.
- A debt older than the statute of limitations can still be collected privately.
BILL'S 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, or is canceled or forgiven. 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. See the Bills.com resource Charge Off for a more complete discussion of this oft-misunderstood phrase.
At some point, and it varies by your state of residence, a debt becomes so old that your state's laws may provide relief. 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. See the Bills.com resource Statute of Limitations to learn more about this sometimes tricky part of civil law.
To see your state's statute of limitations, read the Bills.com Collection Laws and Statute of Limitations page. 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
Federal law (US Code Title 15, §1681c) controls the behavior of credit reporting agencies. This law is known as 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 7.5 years. The clock starts approximately 180 days after the date of first delinquency on the account. To learn when an account will be removed by the credit reporting agencies (TransUnion, Equifax, and Experian and others), add 7.5 years to the date of first delinquency. Subsequent activity, such as resolving the debt, is irrelevant to the seven-year rule. However, if the debt is a tax lien, that can appear for seven years from the date of payment. A bankruptcy will appear for ten years from the date of the final order. Delinquent federal student loans can be reported indefinitely, i.e., for as long as they are delinquent.
Just because a debt is removed from a credit report does not mean the statute of limitations for receiving a judgment to collect the debt has passed. Federal credit report laws and a state statute of limitations laws are separate and independent from each other. The 7.5 years starts running from the date of first delinquency, which generally means seven and a half years from the date of last payment. Review your credit report carefully to make sure the date of first delinquency being reported on these accounts are correct.
The law stating that derogatory items must be removed from credit reports after seven years is designed to help consumers recover from past credit mistakes and help them rebuild their credit rating. If you find charged-off accounts appearing on your credit report after seven years, you may want to dispute the incorrect listings with the credit bureaus.
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. See the Federal Trade Commission document FTC Facts for Consumers: How to Dispute Credit Report Errors for more information.
The seven-year rule only applies to derogatory items, not to accounts that you are keeping current, or which you closed in good standing. As long as an account is not considered derogatory, it can remain on your credit report indefinitely. In fact, even accounts that are no longer reporting to the credit bureaus may continue to appear on your report as long as the account is not a derogatory item. It is common to see positive items that are more than 20 years old appearing on a credit report.
Resolving the Debt
As discussed above, the fact that the debt is charged-off does not mean the debt is forgiven or canceled. Your credit report should not be your primary concern. To learn more about your rights and liabilities in the collections process, see Collections Advice. I also recommend you read What Are My Debt Resolution Options?
I hope this information helps you Find. Learn & Save.
Best,
Bill
January 11, 2012
January 11, 2012
Concentrate your efforts on improving your credit score.
January 12, 2012
January 12, 2012
Back to your original question. According to the facts you shared, Capitol One promised one thing, but did something else. Specifically, in exchange for you paying Capitol One a settlement amount, it promised to notate your account in a certain manner, which it did not. You may have a breach of contract case against Capitol One. Consult with a lawyer in your state who has consumer law experience to learn more about your rights.
Edwardsville, IL | November 02, 2011
November 03, 2011
You should dispute the account with the credit bureaus. If the account is not the same one that you had years ago, you may be a victim of identity theft (though it seems likelier that an unscrupulous collection agency is trying to re-age your debt).
B/o Adamstown, PA | September 20, 2011
September 20, 2011
If the debts are forgiven by the lender, the forgiven debt is reported to the IRS as taxable income. You may be able to avoid declaring the debt as income (and having to pay taxes on it) by using the IRS' Form 982, if you meet the IRS' test for financial hardship. Consult with a tax professional to see if you can use the Form 982.
Beverly Hills, CA | September 18, 2011
September 18, 2011
Davis, CA | May 24, 2011
May 25, 2011
In civil law, statute of limitations is an affirmative defense — it is a legal excuse. In all states except Wisconsin, a collection agent or original creditor may continue to collect the debt privately after the statute of limitations expires. However, if the statute of limitations expires and the creditor files a lawsuit, the defendant must raise the statute of limitations defense in a timely manner. The court will not raise this defense for the defendant.
Regarding the changed date of first delinquency on your credit report, that is illegal if it was done so without the consumer's permission, and is a violation of the Fair Credit Reporting Act.
See also the Bills.com resource California Collection Laws to learn about your rights and liabilities.
Davis, CA | May 25, 2011
May 25, 2011
Regarding the time to credit healing, see the Bills.com resource Short Sale, Foreclosure, Bankruptcy & Your Credit Score.
Coral Springs, FL | May 19, 2011
May 19, 2011
May 18, 2011
May 18, 2011
May 18, 2011
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