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?

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Transforming Debt Into Weatlh
Bill's Answer: Answered by Bills.com Staff

Most debt will be removed from your credit reports 7 years after the date of first delinquency.

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 real consequence of an account charging off is the account will report as a negative item on the consumers’ credit reports. The fact an account is charged-off does not mean the debt is forgiven, cancelled, deleted, or is no longer collectible.

Credit Report Rules at a Glance

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.

Quick Tip: 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 obtain a copy of your credit report from each of the three major credit reporting agencies — Equifax, Experian, and TransUnion — through AnnualCreditReport.com. Your credit reports should list the date that each of the accounts in question were charged off by the original creditor. Even if the accounts have been sold to a third party collection agent, 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, so the fact your accounts bought and sold should make no difference in the length of time these accounts will appear on your credit reports. However, 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 is reporting an inaccurate date of first delinquency, contact the original creditor to determine the date you last made a payment on the account. If a debt collector is reporting a date of first delinquency different from that being reported by the original creditor, dispute the credit report listing with the consumer credit reporting bureaus. See the Federal Trade Commission document FTC Facts for Consumers: How to Dispute Credit Report Errors for more information.

Once you have determined the date of first delinquency, and confirmed that the account information is reporting 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 years after the date of date of first delinquency. As mentioned above, verify the information on your credit report to make sure negative accounts are removed from your credit reports in a timely manner.

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

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Comments (166)


Stephen C.
Kissimmee, FL  |  May 07, 2013
A lienholder 'writes off" a debt and then sells the debt. Is the lien still valid?
Bills.com
May 08, 2013
Unfortunately, the words charge-off and write-off have no meaning in law, and the act of writing-off an account does not change the creditor's right to collect the debt or the consumer's liability for the debt.

Charge-off and write-off are accounting terms that are synonymous. Charge-off and write-off mean a creditor moved an account from its current-accounts book to its general ledger as a bad debt. It does not mean the account is canceled, forgiven, or extinguished. See the Bills.com charge off page for a more complete discussion of this oft-misunderstood phrase.

You mentioned a lien. A lien is the result of a court's judgment. The judgment-creditor did not change its legal rights to the lien when it wrote-off your collection account.
Michelle S.
Green Valley, AZ  |  March 20, 2013
I have been married for 6 years and am slowly rebuilding my credit. Prior to marriage, I found myself always robbing Peter to pay Paul and have bad credit and charge-offs from 2006 and earlier. Do I want to go back and clear this up? All my bad debit is in California. I'm not hiding from anybody, but I'm terrified my husband will have a negative credit record because of me. Do I start the first steps, ignore it at this point, or what? And what is the first step?
Bills.com
March 20, 2013
You have two distinct issues — the debts themselves, and their impact on your credit reports. Let's look at the easier of the two first.

Negative marks on a consumer's credit report must be removed 7 years after the date of first delinquency. This means that if your latest first delinquency was in 2006, you should start to see these derogatories fall off your credit report in 2013 and early 2014. Assuming you have been making on-time payments on your other accounts, in other words you have been generating positive credit history, you should start to see your credit scores zoom upward this year.

Now let's turn to the trickier issue — any unpaid delinquent debt you may have. You indicated you were a California resident when you incurred the debts, and now reside (apparently) in Arizona. The statute of limitations for delinquent credit card debt is 4 years in California, and 3 years in Arizona. This means that if the original creditors — the credit card issuers — file lawsuits against you in California or Arizona, you have an affirmative defense you can raise in a motion to the court. If a collection agent files a lawsuit against you, it must do so in your state of residence, which here I'm surmising is Arizona. Here again, you would raise the statute of limitations defense and ask the court to dismiss the case.

Notice I did not write, "The creditors can't sue you because the statute of limitations has passed." That is because that's an untrue statement in all but two states. A creditor can still file a lawsuit if the statute of limitations has passed in almost all US jurisdictions.

You asked about your spouse and liability for the debt and its possible impact on your spouse's credit score. Generally, spouses do not have liability for each other's pre-marital debt. However, there are some exceptions for spouses in community property states. Arizona is a community property state, but I have not studied the nuances of Arizona's community property law. Consult with an Arizona lawyer who has family law experience to learn if your spouse has any liability for the debt.

You asked where to begin. As mentioned, learn if your spouse has liability for the debt. If not, you have more flexibility and leverage in any settlement negotiations with creditors. Read the Bills.com article Arizona Collection Laws to learn more about your rights and liabilities as an Arizona resident. According to the collections industry statistics, most collection accounts are never collected. Therefore, I follow the "let sleeping dogs lie" approach to accounts that are more than 7 years old and are beyond the consumer's state statute of limitations for that debt. For newer debts, negotiate settlements for less than the face value of the balance due.
David W.
Middleton, WI  |  December 13, 2012
I had two unpaid medical bills from 2007 that arrived at the same collections agency on 12/1/2007 and 2/1/2008 respectively that to this day I have not paid, nor acknowledged their legitimacy to the collector. They appear on my credit report from Experian as the account being "closed" and marked "Potentially negative closed". As of March 2012, they have been reported as delinquent going back to at least 2010, and I assume up to today. My question is this: After 6 years in WI, when the statute of limitations occurs on those accounts, will they continue to show up on my credit report as being delinquent from that day forward until they are paid or will they disappear? I know the SoL means that they can no longer sue me in court for the money, but can they still report to the credit bureaus that I am delinquent in paying?
Bills.com
December 13, 2012
You mentioned Wisconsin. Wisconsin is one of two states where creditors may not file an action (a lawsuit) against a consumer after the state statute of limitations has passed. In other states, the statute of limitations clock running out simply means the consumer has the right to assert an affirmative defense in a lawsuit.

Dig out a copy of one of your three credit reports, or get a new one from AnnualCreditReport.com. Look for the date of first delinquency. That's when the 7-year clock starts on how long this derogatory account may appear on your credit report. Once the clock reaches 7, the account should disappear on its own.
N J.
Jackson, MS  |  October 17, 2012
I had an account that i got behind on and I was told that it was being sold to another lender. The lender finally contacted me and I made arrangements to pay the account. I have paid the account in full, but the original lender is still on my credit report as a write off. Is there anyway to get the original lender to indicate I have paid this account in full?
Bills.com
October 18, 2012
The original lender is allowed to show that your account went into charge-off status. It is required to report only accurate information. Even though you paid the collection agent, it is accurate that the account went into charge-off with the original creditor. The original creditor account will fall off your credit seven years after the date of first delinquency. It will have less and less effect on your credit score, as time passes.
Natassha J.
Roxbury, MA  |  August 15, 2012
I am a Massachusetts native living in Boston. I have a debt that is way over 7 years. They kept taking me to court and the judge dismissed my case without prejudice, but I keep seeing them appear on my credit report as a inquiry like, they have been rumbling through my credit report on purpose. What does that mean? Doesn't that bring your score down just from them doing this? How can I put a end to this issue?
Bills.com
August 15, 2012
There are two types of credit inquiries: Hard and soft. A hard inquiry has a slight negative impact on a person's credit score. However, many hard inquiries over time will have a significant impact. Hard inquiries are supposed to be the result of a consumer's action, such as applying for a new credit card, vehicle loan, or apartment lease.

A soft inquiry on a person's credit report has zero impact on their credit score. These happen all of the time, and are usually credit card issuers who are trolling for prospects with particular characteristics.

Review your credit report carefully. If the inquiries are hard, then consult with a lawyer who has consumer law experience to learn if you have a cause of action against the collection agent under the FDCPA. If the inquiries are soft, then do not worry about them.

You asked how to put an end to this issue. Negotiate a settlement with the collection agent.
Theresa N.
Winter Park, FL  |  August 02, 2012
I have credit card debts that are nearing 7 years so I checked my credit report to see when it would fall off my report. The credit card company had sold the debt to a collection company who reports it as an open account thus leaving it on my report. There is nothing on the report showing the old company charging it off or anything. I disputed to have my info verified, and it came back correct. I don't know when the credit card company charged my account off. What are my options. I'm afraid of talking to the collection company will restart the statue of limitations and I don't know how to get this off my report.
Bills.com
August 02, 2012
When it comes to credit reports, the key date you need to focus on is the date of first delinquency. The date of first delinquency is, as the term appears to be, the date you missed your first payment. That date starts the 7-year clock for when the derogatory will fall off your credit report. A collection agent buying or selling your collection account does not reset the date of first delinquency.

Unscrupulous collection agents will misreport the date of first delinquency to stretch out how long a derogatory account will appear on a credit report. If a collection agent reset the date of first delinquency on one of your accounts, then file a dispute.

Disputing an erroneous date of first delinquency does not reset the statute of limitations on the debt.
Elizabeth K.
Arlington, TX  |  July 05, 2012
Hi, I live in Texas and I have an old debt from GE Capital card from my college years and it was charged off years ago and is no longer on my credit report (its been over 7 plus yrs). The debt was somewhere around $300 give or take and every once in a while I will get a letter from a collection agency stating that I still owe this debt but the balance keep increasing. The last letter I received stated I owed over $4000 now. How is that possible that it keeps increasing? I'm not sure if I ever closed the credit card account but if it was sent to a 3rd party should that make a difference and how can I keep the balance from increasing without acknowledging the debt? Please help, thanks.
Bills.com
July 06, 2012
Collection agents tack-on mystery fees and interest each time a collection account is sold or traded. In some states the fees and interest exceeds the state's usury rate, but other states have no restriction. My advice? The next time a collection agent contacts you about the account, validate the debt. A debt that cannot be validated cannot be collected. Let us say for the sake of argument the collection agent validates the debt. You mentioned Texas. Because the debt is older than Texas' statute of limitations for a written contract (4 years) and it no longer appears on your credit report, send the collection agent a cease communications notice.

You asked how you can prevent the balance from increasing. The only way you can stop all collection activities is to negotiate a settlement to pay the debt. Keep in mind that collection agents pay a few cents on the dollar when buying collection accounts.

My advice? If the statute of limitations has passed, it seems wiser to me to not settle the account and to ignore any collection efforts that come your way. If you are sued, however, make sure to appear in court and use the statute of limitations as an affirmative defense.
Steve H.
Roslyn Heights, NY  |  May 03, 2012
My son's home is in foreclosure. He could fight it (and live for free) and it probably will take a few years here in Nassau County NY. He wants to offer the bank his immediate agreement to the foreclosure and give them the deed in return for the bank removing the bad remarks it placed on his credit reports and not reporting a foreclosure to the credit agencies. It appears it would be a win-win but can the bank legally do this? Thanks
Bills.com
May 03, 2012
What you are describing is a deed in lieu of foreclosure. Follow the hyperlink I just mentioned to learn more.
Avatar
Steven H.
Roslyn Heights, NY  |  May 04, 2012
Actually the bank wants a foreclosure so that they can wipe out any subordinate claims so it's not a deed in lieu they want....it's a foreclosure they want. That being said if my son agrees to the bank's foreclosure action can the bank agree to wipe out his negative credit comments and also not report the foreclosure to the credit agencies. Is it in the bank's power to do that?
Bills.com
May 07, 2012
Under the Fair Credit Reporting Act (FCRA), creditors are obligated to report accurate information to the credit reporting agencies, including Equifax, Experian, and TransUnion.

A credit report is just that — a report. A credit report is not a legal ledger that determines a consumer's liability for a debt.

A more important issue is whether the borrower has liability for the loan's deficiency balance. this is determined by the deal the borrower can strike with the lender, and the borrower's state's anti-deficiency laws.
Amanda N.
Altadena, CA  |  April 24, 2012
I would like to pay off my credit card debt, but I want my account transfered back to the bank. Is it possible for them to transfer it from the collection agency back to the original creditor?
Bills.com
April 24, 2012
If I knew why it important to you for the debt to go back to original creditor, I might be able to give a more complete answer. Regardless, I will try to answer your questions as best I can.

If the original creditor sold the account to the collection agency, then it is highly unlikely that it could end up back in the original creditor's hands.

If the collection agency has been contracted to collect on the debt, the debt could end up back at the original creditor. You can call the original creditor and see if someone will accept payment. Even if you get a no, it is possible that you could get a different answer if you called again, depending on the time of the month, the fiscal quarter, or the fiscal year.

I have it on good authority, however, that you are likely to get the most favorable and flexible repayment terms from a contracted collection agency.
Morgan E.
Fargo, ND  |  April 23, 2012
I have a judgement on my credit report. Its going to fall off on 03/2013. I need to get a new apartment now.... will I be able to get accepted anywhere whith that judgment? Even when it was from so long ago? I do plan to pay it, but I cant before I need to move. I live in ND. Help! Thanks.
Bills.com
April 24, 2012
A landlord could certainly choose to not rent to you due to the presence of an unsatisfied judgment. A landlord has broad discretion on deciding to whom to rent its property. As long as the landlord does not discriminate on the basis of race, religion, national origin, or any protected class, he or she can be quite picky.

Different landlords may apply different standards, so how the judgment will affect you remains to be seen. For instance, you could offer a larger deposit to offset their concerns.
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