Charge-Off, Credit Report & Statute of Limitations

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

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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, 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.

Quick Tip Get a no-cost, no obligation analysis of your debt options from a pre-screened debt relief provider.

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

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Comments (68)


Antonio C.
Atlanta, GA  |  October 16, 2013
My wife has a card that was reportedly charged off. She believes closed the account, and paid the final balance on the card, however since it was close to 7 years ago, she's not sure anymore. The account on all of her credit reports is in the "accounts in good standing" section of the report and with a zero balance, however it in one of the reports it says it was purchased by another lender. there is no mention of a charge off on any of the credit reports. we've been receiving harassing phone calls from a collection agency regarding this account, and they will not provide information regarding the account or validating the debt to us. we've made attempts to contact the original creditor and the new owner of the account to get more information. is it possible for a charged off account to appear as in good standing on a credit report? and will it say that there is a zero balance even when there is not?
Bills.com
October 16, 2013
As you mentioned, three independent companies publish credit reports based on information each gathers and receives from creditors. It is possible for each credit reporting agency to publish different information about your spouse, or anyone else for that matter. None of the credit reporting agencies should be considered publishers of the gospel — indeed most credit reports contain errors, and up to 1 in 4 credit reports have errors significant enough to harm a consumer's credit score.

In other words, don't rely on information in a credit report because it may be wrong. Trust your own records, such as cancelled checks, bank statements, and receipts.

My advice? The next time the collection agent calls, gather all of the contact information you can about the collection agent's employer, and validate the debt. Learn your rights under the Fair Credit Reporting Act.
Brandon J.
Saint Louis, MO  |  June 11, 2013
I am trying to get a credit card to build credit. I notice on my credit report a charge off that became delinquent in 2005. I settled the account in 2008. I am correct in reading your article that it does not matter if I paid it in 2008, the date that the credit report should look at is 2005, yes? Therefore, it should have fallen off in 2012? I want to file a dispute if this is the case, and I believe I read your report correctly. Thanks for the help.
Bills.com
June 11, 2013
Under the FCRA, most negative information on a consumer's credit report must be removed 7 years after the date of first delinquency. The FCRA gives the consumer credit reporting agencies 180 days of wiggle room in their timing to remove derogatory items, however. That is why we sometimes refer to the FCRA 7-year rule as the "7½-year rule."

Let us say for the sake of argument your date of first delinquency was January 1, 2005. The information about that account should be removed on January 1, 2012, but the consumer credit reporting agencies have up until June 30, 2012 to remove the item from your credit reports. Let's change our facts a bit and say your date of first delinquency was December 31, 2005. The information about that account must be removed sometime between December 31, 2012 and June 29, 2013.

You mentioned you settled the account in 2008. Any settlement is irrelevant to the 7-year rule. The date of first delinquency starts the clock on the 7-year rule.

Equifax, Experian, and TransUnion are the largest consumer credit reporting agencies. Look at your credit reports published by Equifax, Experian, and TransUnion. Each report may contain different information. File a dispute with the consumer credit reporting agencies reporting the derogatory account.
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Chris B.
Chicago, IL  |  March 03, 2014
This is incorrect. The 7 year rule applies to the Date of First Major Delinquency (charge off). Negative information resulting in a charge off can be reported for 7.5 years and the charge off can be reported for 7 years. There is no wiggle room in the FCRA and it's pretty clear:
(c) Running of reporting period.
(1) In general. The 7-year period referred to in paragraphs (4) and (6)2 of subsection
(a) shall begin, with respect to any delinquent account that is placed for collection (internally or by referral to a third party, whichever is earlier), charged to profit and loss, or subjected to any similar action, upon the expiration of the 180-day period beginning on the date of the commencement of the delinquency which immediately preceded the collection activity, charge to profit and loss, or similar action.
Bills.com
March 03, 2014
Regarding the date of first delinquency, to our knowledge, the consumer credit reporting agencies follow the interpretation of the FCRA §§ 605(c) and 623(a)(5) as articulated by FTC Staff Attorney Clarke W. Brinckerhoff to Clifford A. Johnson dated August 31, 1998 and Alaina K. Amason dated February 15, 2000. We welcome citations to court cases or a similar higher authority in accordance with your interpretation.
Hugo M.
Debary, FL  |  February 24, 2013
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.
Bills.com
February 24, 2013
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."
Marina C.
Portland, OR  |  January 19, 2013
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?
Bills.com
January 23, 2013
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.
Sarah S.
Davie, FL  |  October 25, 2012
Such a wonderful post!Thank you for posting this thing.
Nina S.
Union City, CA  |  September 25, 2012
Where do you find the date of when your account went delinquent? I can only find when it was opened. Thank you.
Bills.com
September 25, 2012
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.
Ginny C.
August 30, 2012
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!
Dee B.
Corinth, VT  |  July 21, 2012
Question, if a creditor Charges Off a deliquent credit card can they report this each and every month as a charge off on a credit report. It has been going on for over 3 years. Each and every month. Staute of limitations is 3 years in the state that I lived in when I opened the account.
Bills.com
July 22, 2012
Your delinquent account will remain on your credit report for 7 years after an initial 180 days from the time the account became delinquent. The charge-off is a technical term which means that the creditor has placed your account on its book as a bad debt. They still have the right to collect on the account.

The statute of limitations is a separate issue, The SOL may, protect you in case of a law suit. In most states a creditor can sue you even if the SOL has expired. You need to make an affirmative defense. If you get a court summons do not neglect to answer it. A court judgment can lead to wage garnishments, bank levies and liens on your personal property. The public judgment would also appear for on your credit report for a 10 year period.

Remember that SOL issues can be quite tricky. Where you currently reside and when you moved there can certainly affect the expiration of the SOL.
Jasmine S.
Philadelphia, PA  |  July 11, 2012
If you have a judgement appearing on you Credit report as well as the original creditor (capital one), how would you go about paying it back? would you contact the original creditor or the person that has the judgement? Also what does charge off vs final charge off mean?
Bills.com
July 11, 2012
Contact the judgment-holder to arrange repayment. Please keep in mind when you contact the judgment-creditor, they could choose to be aggressive. They could accelerate collections, moving to garnish your wages or levy your bank account, consistent with your state's collection laws. Be cautious when you contact them. Learn what is the most that they could get via a garnishment, before you speak, so you don't agree to a higher payment voluntarily than a garnishment would produce.

In the accounting world, there is no difference between "charge-off" and "final charge-off."
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Jasmine S.
Philadelphia, PA  |  July 11, 2012
concerning the charge off question, if SOL is enforced AFTER the first charge off or the first date of delinquency, why is it that I see on the validation letter a first charge off and a final charge off. I am not understanding. I would go with the first for SOL and send the collector a letter right?
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Jasmine S.
Philadelphia, PA  |  July 11, 2012
would my account be garnished just once? or continued until the debt is paid?
Bills.com
July 11, 2012
A judgment-creditor may apply an account levy, called account garnishment in some states, as many times as it wishes until the debt is paid in full. Account levy is not a one-shot right.
Bills.com
July 11, 2012
In most states, the clock for the statute of limitations on a breach of contract starts when the debtor misses a payment. For example, if the creditor and debtor signed a contract or had an oral contract where the debtor agreed to repay a debt on July 20, but doesn't, the date of breach is July 21. That is when the clock starts. Statutes of limitations are state laws, and each state's rules apply.

The rules for credit reports are federal, and can be found in the Fair Credit Reporting Act. The FCRA sets the rules credit reporting agencies, such as Experian, Equifax, and TransUnion, must follow. The FCRA uses the "date of first delinquency" phrase you mentioned. The date of first delinquency starts the clock for the 7½-year rule mentioned in the FCRA. The 7½-year rule sets how long the credit reporting agencies may report most derogatory entries on a consumer's credit report.

The 7½-year rule for credit reports is separate and independent from each state's statute of limitations rules. For example, a derogatory item appearing on a credit report may be older than the consumer's state statute of limitations for debt. Conversely, a debt may fall off of a credit report after 7½ years, but still be within a state's statute of limitations. That is what I mean when I write the 7½-year rule and each state's statute of limitations for a breach of contract are separate from each other.
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Jasmine S.
Philadelphia, PA  |  July 12, 2012
thank you!
Meg S.
Framingham, MA  |  June 21, 2012
This spring my husband received a letter from a collection agency seeking payment of 1998 (car) and 1999 (motorcycle) tax bills from the Town of West Hartford, CT for a car and motorcycle he owned when he lived there. He was unaware until receiving this letter that he had any oustanding tax bills. He moved to CA in May of 1999. I paid his 1997 tax bill plus interest in 2005 when we were contacted by the same collection agency. I was not told that there were any other bills outstanding when I made that payment. If I had known, I would have wanted to resolve all bills at that time. The collection agency said that they did not know about the 98 and 99 debt in 2005. It claims that it just found out about these debes. The collection agency states that it is collecting on behalf of the Town of West Hartford and did not purchase the debt. It states that by statute neither the agency or the Town can resolve the debt for less than demanded (a large amount of interest has accrued). Apparently, there is a 15 yr. statute of limitations in CT and the tax collector does not have to show bills were sent or received. The Town of West Hartford apparently was not very thorough with its billing as my husbands former roommate was also recently contacted by the collection agency seeking a few thousand dollars for his unpaid auto tax bills that he was unaware of. My husband claims that he does not recall receiving any bills that he just ignored. Can these debts still be reported to the credit bureaus? I do not want to jeopardize our excellent credit, but it is annoying to have to pay a large amount of interest on debts we were not even aware existed - expecially since I would have taken care of it 7 years ago had I been advised of other outstanding debts at that time. Thanks so much for your advise. - Meg
Bills.com
June 21, 2012
I assume, note that word choice, the delinquent taxes are not tax liens. If so, the FCRA catch-all provision applies, and the debt can appear for 7 years from the date of first delinquency:
Any other adverse item of information, other than records of convictions of crimes which antedates the report by more than seven years.

My advice? Validate the debt. A debt that cannot be validated may not be collected. If the collection agent validates the debt, then send it a cease communications notice.

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Meg S.
Framingham, MA  |  June 22, 2012
Thanks Bill. I did send a certified/return receipt letter when we were first contacted seeking copies of all bills sent and records of any payments. What I got back was a computer printout of the amts. claimed and info claiming that the statute of limitation is 15 years, that the debts cannot be settled for less than owed by statute, and that by statute, the debt is owed regardless if bills were sent or received. I will seek further info. One thing I am confused about. The taxes were due over 7 years ago. So the debts cannot be reported to credit bureaus? Thanks - Meg
Bills.com
June 22, 2012
Are the tax bills tax liens? If so, then a tax lien can appear on a credit report for seven years from the date it was paid.

Are the tax bills the result of a civil suit, civil judgment, or an arrest? If so, these can appear for seven years or the governing statute of limitations, whichever is longer.

Any other adverse item of information, aside from a criminal conviction, can appear on a credit report for no more than seven years from the date of first delinquency.
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