Credit Report Question & Dispute

Your questions are important to anyone who has old debts hanging out there in charge-off "limbo land," and that may have run through many hands of collectors and/or purchasers.

Fair Debt Collection Practices Act

The longer since charge-off and the more agencies that have been involved on the creditor side, the more confusing and inaccurate the credit report entry will tend to be. The process created by Congress under the Fair Debt Collection Practices Act (FDCPA) to identify collection accounts that have been bought and sold, sometimes several times, is called "debt dispute and verification."

If you are not familiar with the entity trying to collect a purported balance, you should dispute that you owe the debt or the amount of the debt. The collector may have the account history which it must provide to you to answer your dispute. The collector is required to state the name of the original creditor if ownership has changed. Just this much information will usually allow you to identify the account on the credit report as one of your old charge-offs. If the balance is bogus you can still compare your payment records with theirs. The most advantageous provision of the FDCPA relating to collection activity is that until the collector can "verify" the debt, i.e., deliver documentation that there is no mistake as to debtor identity, all collection efforts must terminate and not to resume until acceptable verification is provided.

Collection Agents & Old Debt

This is how the "bad/old debt" market works: An account purchaser (many times for very old debt, this is the collector contacting you) can buy the account "bare" with no documentation or with full documentation. The documentation is legally acceptable as proof of the debt, enough to support a judgment. Why would a purchaser choose to forgo purchasing the documents that are necessary to prove the existence of the debt and his newly bought right to collect it? Put simply, the price differential between documented and undocumented accounts is huge.

Since relatively few accounts are ever questioned or disputed, the cost of documentation usually seems a waste of money to the collector/purchaser. However, if you dispute the debt, the collector that bought the debt without documentation to save money has no way to verify the debt to you.

Therefore, it cannot continue to collect legally.

Debt Dispute & Verification

Instead of just paying a debt because the collection letter says that the addressee owes it, more and more consumers are becoming collection savvy and questioning the questionable debts by demanding formal FDCPA verification. Many never hear from the collector again.

Just make sure when you dispute debts you leave the big three credit reporting agencies (Equifax, TransUnion, and Experian) informed. Get your free annual credit report from all three at AnnualCreditReport.com.

Then, if you choose, you can start disputing and requesting verification directly with the credit bureaus and the debt purchasers on the debts that you do not recognize. The Bills.com Debt Do-It-Yourself contains sample debt verification and other letters you can download and customize for your needs.

If the purchasers are able to verify the debts, and the verified entries add up to $10,000 or more, you might want a debt negotiation firm to settle on these for you and clear up your credit report completely. You can attempt this yourself, but it is time-consuming and you might not get as favorable results. Bills.com has advice on Credit Solutions.

Statute of Limitations & Collecting Debt

Another important issue that arises with old debt is the statute of limitations (SoL). The statute of limitations the time period in which a creditor must file a lawsuit against a debtor to collect on an unpaid debt. Each state has its own statute of limitations; for example, in California the SoL is four years.

If the SoL has expired, you have an absolute defense against any lawsuit a creditor or debt purchaser files against you, but you must file an answer to assert your defense. Otherwise, the court will not know that the SoL has expired, and will likely grant the creditor a judgment against you.

See the Bills.com Collection Laws and Statute of Limitations for information about your state. If the SoL has expired, you may want to send a letter to the collector demanding they stop calling (they are required to honor such requests by Federal law) -- the collector will simply not be able to collect the debt.

Statute of Limitations & Credit Reports

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 has passed. Federal credit report laws and a state statute of limitations laws are separate and independent from each other.

You may be able to get them off faster if you dispute the debts and the creditor is unable to verify them. Even if you cannot get them off with a dispute, if your state’s SoL for collection of debts has already expired, it may be worth it to wait a couple more years for the accounts to come off your credit report on their own.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com