Clean-Up Charged Off Debt Accounts

I have a lot of old debt and charge offs. What is the best way to clear these up?

I have a lot of OLD debt. A lot are old charge-offs and my credit report only shows the collection company's debt and not the original debt. How do I find that out if they show to be open when the collection company bought the debt. Should I contact the collection agency? What should I do to find out how old the debt is and when it will come off my credit? I have been living with this for years and I would like to take care of it. What would be the best way to go about this?

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Updated: Sep 3, 2014

Transforming Debt Into Weatlh

Most debt will be removed from your credit reports 7 years after the date of first delinquency. Here are the steps to take to deal with old and charged off debt accounts.

Charge Off

The term charge-off is an accounting term used by creditors. It means an account is transferred from the “accounts receivable” books to the “bad debt” ledger. Credit card issuers are required to do this by the federal Office of the Comptroller of Currency, in an attempt to prevent banks from inflating future earnings statements with defaulted accounts. For the consumer, the only consequence of an account charging off is the account will report as a negative item on the consumers’ credit reports.

Credit Report Rules at a Glance

Federal law (US Code Title 15, §1681c) controls the behavior of consumer credit reporting agencies. 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 may be reported 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 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 you owe.

If you struggle with credit card debt, then get a no-cost consultation with a Bills.com pre-screened debt provider.

Get No-Cost Copies of Your Credit Reports

The best way to determine the date of first delinquency is to get copies of your credit reports from each of the three consumer credit reporting agencies — Equifax, Experian, and TransUnion — through AnnualCreditReport.com. Your credit reports should list the date each of the accounts in question were charged off by the original creditor. Even if the accounts are sold to collection agents, your credit reports should still reflect the original date of first delinquency, which starts the 7-year clock.

Debt collectors are not allowed to change the date of first delinquency on accounts they purchase. Whether collection agents buy or sell your accounts, the date of first delinquency may not change. Unscrupulous debt collectors change dates of first delinquency in an effort to keep old accounts on consumers’ credit reports longer than 7½ years.

If a collection agent misreports the date of first delinquency, contact the original creditor to learn the date you last made a payment on the account. If a debt collector reports a date of first delinquency different from that being reported by the original creditor, dispute the credit report listing with the consumer credit reporting agencies.

Once you find the date of first delinquency, and confirm the account information is reported correctly to each of the three credit bureaus, you should be able to determine when the accounts will fall of your report. The accounts should be removed automatically from your credit report 7 to 7½ years after the date of date of first delinquency. As mentioned above, verify the information on your credit report to make sure negative information is removed from your credit reports in a timely manner.

Dealing with old and charged off debt accounts is a chore, but should be much easier now that you know what steps to take. To learn more about credit, credit reports, and credit scoring, visit the Bills.com credit help page.

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

Best,

Bill

Bills.com

213 Comments

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  • LS
    Jun, 2014
    Leah
    I had an old credit card debt that was charged off by the original creditor around 2000-2003. A collection agency reported the debt on my credit report with an open date of 2013, no date of first delinquency (DOFD) listed. I have disputed this with TransUnion. I tried to get the DOFD from the original creditor, but due to the age of the account they do not have that information, but I found the debt has been sold at least 4 times. Must the collection agency provide TransUnion with the DOFD to validate the debt? I'm worried they will get away with re-aging this account because I can't get documentation to show the true age of the account.
    0 Votes

    • BA
      Jun, 2014
      Bill
      Your question touches on the Fair Debt Collection Practices Act (FDCPA), which sets the rules for debt collectors, and the Fair Credit Reporting Act (FCRA) which sets the rules for what can appear on your credit report.

      Under th FDCPA, a collection agent must report accurate information on a consumer’s credit report. It may not threaten to report false information in the process of collection. If the collection agent is reporting an inaccurate DOFD, then it violates the FDCPA.

      Under the FCRA, the consumer credit reporting agencies — Equifax, Experian, and TransUnion — are required to correct or delete any information that is inaccurate, incomplete or that cannot be verified. You have the right, under the FCRA, to dispute any incorrect information on your credit report.

      If the CRAs do not correct the information on your credit reports, then consult with a lawyer who has experience with FCRA and FDCPA violations. You may wish to file a lawsuit against the collection agent who reports the false information, and the CRAs that publish the incorrect information.
      0 Votes

  • CM
    May, 2014
    CoralSea
    You should reduce your extra spending and also organize your other loans. You should pay your debt as soon as possible. You can sell your car, or anything to get rid off debt. Debt collectors can sue you and ruin your life. Best of Luck!
    0 Votes

  • VR
    May, 2014
    Victor
    I have two auto loans that were repossessed. They were showing a zero balance on all my credit reports. I recently disputed the items to get them removed because it has been over 5 years and now show a balance. Did I just open a can of worms? And can they now come after me for the balance?
    0 Votes

    • BA
      May, 2014
      Bill
      Bills.com does not recommend consumers file a dispute with the consumer credit reporting agencies on unpaid debt. Why? Two reasons.
      1. The credit report dispute process is designed to fix errors. If the information in question is accurate but inconvenient, you're misusing the dispute process.
      2. If you ignore reason No. 1 and file a dispute anyway, your chances of success for deleting an unpaid account are low, and here's why. Look at this from a collection agent's perspective. You have bunch of collection accounts in front of you. You receive a notice a consumer wishes to dispute one of your collection accounts. That's a signal this particular consumer now cares about their credit score. Why? Maybe this consumer wants to qualify for a home loan or car financing. Maybe this consumer saved some money, and is ripe for collections.

      In any event, the derogatory mark on a credit score is leverage the collection agent can use against the consumer.

      The time to dispute a derogatory is after the account is settled when the collection agent doesn't care about it anymore.

      0 Votes

  • AV
    Apr, 2014
    Alex
    I now reside in Florida (have had since June 2013) after 20 years in California. I worked in the entertainment business and did well, except for a very bad stretch in 2005. During that time bills piled up and could not be paid, all of which have finally dropped off my credit reports and by and large except for some vulture scavengers all collection efforts for these old debts has ceased. I'm able to get credit easily, so that's not my issue. My issue is a (default, I didn't show up) auto repo deficiency judgement which I really never heard a thing about (not bank levies, garnishments, etc) while in CA has reared it's ugly head here in Florida, in the form of a local attorney representing the finance company trying to collect the debt and sending on of those "reply within 30 days" letter. The judgment will statute-out in California in 2016 (barring renewal, which seems like it can go on forever, no?), and the amount is just north of $15K. I can't pay it or anything close to it. My question is, does living in Florida now affect their ability to aggressively collect (levy my bank, garnish, etc), and do you think they'll really bother with this old debt? As a sidebar, the finance company (Ford Credit) was slapped with a class action suit due to unscrupulous and illegal process serving and repo practices during this time wiping out ALL deficiency debts — exception being those where they received actual judgments (which makes no sense to me). Might this work in my favor here? Many, many thanks.
    0 Votes

    • BA
      May, 2014
      Bill
      You mentioned you reside in Florida. The Bills.com Florida Collection Laws page contains information you need to understand your rights and liabilities. In Florida, an out-of-state judgment has a 5-year lifetime. The 5-year clock starts when the judgment-creditor domesticates the judgment in Florida. Review your documents to learn when the clock started.

      Consult with a Florida lawyer regarding the Ford class action, and if it has any bearing on your present case.
      0 Votes

  • EV
    Apr, 2014
    Ed
    I have a few collection accounts that I have already paid off. I recently looked at my TransUnion credit report and the Remarks on the report say Paid Collection but in the status sections they all have a 9. Does having my paid collection accounts still showing up in status 9 have an impact on my credit score. Should they have been changed to Status 1 after being paid?
    0 Votes

    • BA
      Apr, 2014
      Bill
      According to TransUnion documents, a status 1 Manner of Payment (MOP) code is "Pays as agreed." TransUnion has three status 9 MOP codes:
      • 09 Charged off to bad debt
      • 9B Collection account
      • 9P Paying or paid account with MOP 09 or 9B

      What impact do this codes have on your credit score? That depends on the credit score. If your lender uses one of the FICO scoring models, then you will see no difference between a 1 and a 9. That's because FICO doesn't care if the collection account is settled or unpaid. VantageScore treats paid delinquent debt differently. If your lender uses VantageScore, then the penalty caused by a delinquent account is lifted when it is paid.

      Under the Fair Credit Reporting Act, original creditors, collection agents, and others reporting information to the credit bureaus are obligated to provide accurate information. In my opinion, a status of 09 or 9B is inaccurate, but a 9P is accurate. File a dispute if you see a 09 or 9B on your TransUnion credit report. Check your Equifax and Experian reports to learn if the status for this account is accurate at the other two credit bureaus.

      0 Votes