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 Mark Cappel

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.

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 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.

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Always validate a debt.

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

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Comments (204)


Ed V.
Mission Viejo, CA  |  April 20, 2014
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?
Bills.com
April 21, 2014
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.

Jp N.
San Jose, CA  |  April 14, 2014
I pulled my credit report and it shows 4 charged off credit accounts totaling $4,000. The accounts dates the first date of delinquency between 7/2009 and 8/2009 for all 4 accounts. I live in CA and the debts are in CA. I currently have an auto loan which is helping me build my credit. My question is, would it be worth it down the line to pay off the debt now, or just wait 2 more years for it to be removed from my credit report. If they are removed from my report, could they come back to haunt me later on? If I pay them now, would the settlement or payment in full be seen as negative?
Bills.com
April 15, 2014
Two clocks are in play here. The first, and most important, is the statute of limitations clock. In California, the statute of limitations for most consumer debts is 4 years. You mentioned July and August 2009. It is likely the statute of limitations clocks for these debts ran out in July and August 2013. Consult with a lawyer if you receive a notice of a lawsuit on either of these accounts, and discuss answering the complaint(s) with a statute of limitations defense and a counter-suit for an FDCPA violation.

Regarding the 7-year, Fair Credit Reporting Act clocks, these will run out in July and August 2016. After that date, collection agents violate the FCRA if they report these accounts to the consumer credit reporting agencies. If they do so, consult with a lawyer who has FCRA experience.

Paying these two accounts now will cause no improvement in your credit score. However, if you are applying for a loan, the status of settled may be viewed more positively to a loan underwriter than unpaid. If you have no plans to apply for a loan in the foreseeable future, then settling the debts may make you feel better, but it won't change your credit score.
Kendra D.
Sterling, CO  |  March 28, 2014
I pulled my credit report & saw an old medical bill that is now in collections with a collection agency. I contacted them regarding this debt via a letter and asked if they would settle the debt allow I am not affirming that the debt is mine. I received a form letter back saying you have to call us in order to discuss the matter. I had my boyfriend call regarding the debt since I was traveling to see what they had to say. They told him I had other medical debt from before and that they needed to talk to me directly. He replied, "Any other debt in question must be beyond the Colorado SOL, correct? The debt I am calling about is this account that I specifically stated." They in return said, "Have your wife (not girlfriend) call us to discuss her outstanding accounts." I am trying to get my finances in order, however, I do not want to restart any debt clocks on outstanding medical bills that are now extremely over-inflated that are not on my credit report, however, I want the one account that is on my report to be taken care of so that I can try & purchase a home. How should I proceed if they insist on talking to me & bring up the aged accounts that are beyond SOL?
Bills.com
March 28, 2014
Under the FDCPA, the collection agent is permitted to speak to you or your lawyer about your debt. Unless your boyfriend is a lawyer, or has power of attorney on this matter, then the collection agent violates the law by disclosing any information about your debts to him.

Negotiating a settlement will not reset the statute of limitations clock. What will restart the clock is a payment or written acknowledgement of the debt.

Under the FDCPA, collection agents who have more than one collection account for a consumer must treat each account separately. They cannot apply a payment or settlement for Account A to Account B. If the collection agent insists on mixing-up the accounts in its negotiations with you, then stop the conversation and consult with a lawyer.
CD W.
Stockton, CA  |  March 04, 2014
If I call a collection agency to find out what these charges showing up on my credit report are, can they still reset the clock on an old debt even if I tell them the charges are not valid & I am going to dispute them?
Bills.com
March 10, 2014
Asking about the status of a collection account will not reset a statute of limitations clock. Be careful what you put in writing, however. Do not call the collection account, "My debt" or "My account" or "The amount I owe." Instead write, "The account you attribute to me" or "The amount in dispute between us" or "The account in question." Consult with a lawyer if you believe the collection agent is trying to confuse, trick, or mislead you.
Brenda J.
Dunedin, FL  |  March 03, 2014
Live in FL. Like many on here, I have a first mortgage (current) and an Equity Line. House is upside down. Due to divorce and subsequent rulings, the last time a payment was made on the Equity Line was October 2010. Tried to negotiate a settlement with bank, but they wanted more than I had (I am permanently disabled). Received email from lender rep saying they were going to go after ex for it, since it he was ordered to pay it. They said they would not pursue it anyway since the house was upside down and they would not get anything out of it if sold. Was advised that after a few years of non-collection, I could petition the court to release the lien. They charged it off (May 2011) and I have not heard from them since. It does not show as collection or negative on my credit report, just charged off. Now another place is contacting me saying that they bought the bad debt and are threatening to foreclose on me. They said not bothering ex because he told them to shove it. Don't have any money to pay these new people and when asked to validate it, they finally sent me a "transfer of mortgage" doc that is not even dated and was filled in by hand. Never received anything from original bank saying they sold it or even that anyone else would be servicing it. Ex's name is NOT on my deed. Should I just ignore this guy calling and emailing?
Bills.com
March 03, 2014
If the debt shows up as a charged off, then that shows up asa negative status on your credit report. I would not recommend ignoring the collection agencies request. If the collection agency decides to pursue a foreclosure, then you should consider all of your alternatives, including a short sale or bankruptcy. If the house is upside down, then you need to consider negotiating a settlement regarding the deficiency balance. Most definitely, don't ignore any official court summons. Since you still have a first mortgage, try again to negotiate a modification with the Bank. Check to see if housing prices have increased. Maybe your bank will be willing to modify your first mortgage and refinance your delinquent HELOC, or refinance your loans into a new loan.
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Brenda J.
Dunedin, FL  |  March 03, 2014
Also, it does not show up as a negative or collection in my credit report. I challenged it years ago and sent in my legal docs and it was removed as a negative. It simply shows up as a closed account and the code says CO. It has been that way for almost 4 years now. My FICO is 742.
Nicole M.
Colorado Springs, CO  |  February 25, 2014
The account for my direct loan from my college is listed as closed and transferred to a collection agency or attorney. I haven't had a delinquency in the past 8 months but when I check my score it said I haven't been deliquent in .1 years. I thought the math was wrong so I looked at my report and see that my so-called closed college acocunt is still listing me as 120 late and Key Derogatory into this year. How can I fix this? Why would a close account still be listing negative information?
Bills.com
February 25, 2014
"Closed" is not synonymous with cancelled, forgiven, paid, or no longer collectible. An unpaid collection account is considered a "derogatory" in the credit report world. Derogatories harm your credit score.

If you settled or otherwise paid-off the debt, then the account should have either a "settled for less than the amount due" or "paid as agreed" notation. If you resolved a debt that is incorrectly reported, then file a dispute with each of the big-three consumer credit reporting agencies publishing the error.
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Brenda J.
Dunedin, FL  |  March 03, 2014
I tried for loan modification on the first loan twice and was turned down after 7 months of them jerking me around both times (BofA). First time was because of this HELOC situation and last year they said they don't consider me to be "at risk" with their mortgage. This new person (on the HELOC) is not a collection agency, they are a small group of investors based out of UPS mail box stop in CA. I tried talking with the guy several times, sent him the legal documents, asked for validation of the loan, etc. Says they understand my situation, but they still keep emailing me. As I said, I do not have any money to offer them. The house is still upside down if the HELOC balance is added in. (I have no idea how much is owed on it, and they have failed to provide me with any info). Tried to sell the house last year but first mortgage would not take a short sale because I am current on it. I spoke with a bankruptcy attorney and he did not advise bankruptcy, nor would I have money to file for it.
Te W.
College Park, GA  |  February 17, 2014
I have an account that was transferred, closed. Payment history list CLS for Jan 2014 however the first day of delinquency is Nov 2007. Will this be removed 7 years from 2014?
Bills.com
February 18, 2014
Yes, it should fall off your credit reports 7 years after the date of first delinquency. A debt does not re-age when it is reported by a new collection agent or if you reach a settlement and pay off the debt. The date of first delinquency starts the FCRA 7-year clock, and other events do not reset the clock.
Ron W.
Murrieta, CA  |  January 25, 2014
I have a 1st mortgage of 370k, a 2nd of 90k and a 3rd for 71k for a house in California. The house is currently worth about 250k and in right mind, I should walk away. In May of 2010 we made our last payment on our 3rd. When I talked to the lender last, I told them that I was not willing to pay as the house was below 50% of what it was worth. At that point, the lady from the lender said that she would contact me again in a few months to see if I wanted to change my mind. Well 6 months or so later, I still haven't changed my mind and she hasn't called back. Today I recieved a letter that my loan was sold. Looking to see what the probability on what will happen. Any thoughts or advice would be greatly appreciated.
Bills.com
January 27, 2014
If you want to remain in the house for sentimental reasons, or maybe you have kids and the school system is excellent, or the housing pricing are rebounding quickly, then you have a reason to stick it out to see how aggressive the collection agents will be. However, if you plan to move in the next few years or the housing prices will not rise in the foreseeable future, then talk to a lawyer now about your liability under California's anti-deficiency law should you strategically default. You may want to bail-out of the property now, so that you can rebuild your credit score and become eligible for another home loan.
Marie J.
Apple Valley, MN  |  December 27, 2013
I have old bad debt but settled on my report from 2003. It is past its 7-year period to appear on my report. Why is it still there? Also, should I get credit cards that were closed by the company off my report if they are older than 7 years? Are they negatively effecting my score?
Bills.com
December 30, 2013
Credit reports contain errors. File a dispute with each of the consumer credit reporting agencies — Equifax, Experian, and TransUnion — that publish the derogatories older than 7 years.

Some derogatories can appear for more than 7 years, including judgments and some student loan debts. See the Bills.com FCRA article to learn more.
Natalie L.
Hermitage, TN  |  December 14, 2013
I have a large sum of private student loan debt that has been charged off and sold to collections. I made 1 $50 payment but need to stop the reoccurring payments to pay some immediate debt off first. How does this affect me if I stop it? The date of my original delinquency was 5 or 6 years ago... Will this payment reset anything? Can the collection agency take legal action against me?
Bills.com
December 19, 2013
You indicated you reside in Tennessee. Under Tennessee case law, making a voluntary payment or written promise to pay a delinquent debt resets the statute of limitations clock to zero. Your $50 payment restarted the statute of limitations clock as of the date you made that payment, if it was voluntary.

Read the Bills.com Tennessee Collection Laws page to learn more about your rights and liabilities as a Tennessee resident.

It is impossible to predict how creditors will react to a delinquent account. Filing a lawsuit is a last resort, but it is an action aggressive original creditors and collection agents pursue.
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