Charge-Off, Credit Report & Statute of Limitations

How long will a charge-off appear on my credit report?

If I have a charge off on my credit report, will that affect my credit rating? How long will it stay on my credit report if I don't pay it off or file bankruptcy?

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  • 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.

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.

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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 Rules

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 Bills.com 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 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 7-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

Bills.com

62 Comments

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  • HM
    Feb, 2013
    Hugo
    I am trying to pay off my debt because I eventually want to be a home owner. I made stupid mistakes with my credit when I was younger, which now I want to fix. I know I had a debt with Bank of America, Best Buy, Macy's and Tire Kingdom that I stopped paying, in either 2005 or 2006. I just obtained a copy of my 3 credit report, but no where on the credit report I see the above debt either as collection, or charge off...I live in the state of Florida...What should I do??? Please any advised would be helpful.
    0 Votes

    • BA
      Feb, 2013
      Bill
      Under the Fair Credit Reporting Act, which is a federal law setting the rules consumer credit reporting agencies must follow, a derogatory item must be removed from a consumer's credit report 7 years after the date of first delinquency. If the dates of first delinquency for the four accounts you mentioned were in 2005, the items fell off of your credit reports in 2012. They may no longer be reported.

      The debts you mentioned are not extinguished, canceled, or forgiven. However, as mentioned, they may not be reported after 7 years. If the original creditor or their collection agents have not pursued you for the debts so far, then you it is unlikely they will do so in the future. In this case, I would follow the cliche, "Let sleeping dogs lie."
      0 Votes

  • MC
    Jan, 2013
    Marina
    I had a short sale in 7/2011. The first settled and closed. The second only signed off on the SS once I agreed to a lump sum partial payment and a payment plan for an additional partial amount. My credit report shows the second as a charge-off in 9/11 for the amount not paid, and the payment plan as an unsecured loan starting 7/11. Does this sound correct? Should I be worried about them coming after me for the charge-off amount at some future time? Do I have any strategy for asking them to remove the charge-off?
    0 Votes

    • BA
      Jan, 2013
      Bill
      Did you make the lump-sum payment? Did you follow-through on the payment plan as agreed?

      Let's assume the answers to both of these questions are yes. The Fair Credit Reporting Act allows you to dispute inaccurate items appearing in your credit reports at the big-three consumer credit reporting agencies — Equifax, Experian, and TransUnion. If you made the payments as agreed, then the account should not appear as delinquent or a charge off.

      If the answer to one or both of my questions is no, then you do not have a basis to dispute what appears on your credit report.

      You asked if you need to worry about someone pursuing you for the deficiency balance. Original creditors of deficiency balances oftentimes sell these collection accounts to collection agents for pennies on the dollar. How aggressive a collection agent will pursue you depends entirely on the collection agent and its policies — there is no rhyme or reason to which debtors collection agents pick for collections.
      0 Votes

  • SS
    Oct, 2012
    Sarah
    Such a wonderful post!Thank you for posting this thing.
    0 Votes

  • NS
    Sep, 2012
    nina
    Where do you find the date of when your account went delinquent? I can only find when it was opened. Thank you.
    0 Votes

    • BA
      Sep, 2012
      Bill
      The date of first delinquency is shown on your credit reports. Get a no-cost copy of your credit report from one of the big-three consumer credit reporting agencies at AnnualCreditReport.com.
      0 Votes

  • GC
    Aug, 2012
    Ginny
    I had no idea that debt had a statute of limitations. I'm sure that the length of time is determined by the type of debt and the state that the person is living in. This is something that I would like to investigate further. Thanks for the post!
    0 Votes