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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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

166 Comments

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  • SC
    May, 2013
    stephen
    A lienholder 'writes off" a debt and then sells the debt. Is the lien still valid?
    1 Votes

    • BA
      May, 2013
      Bill
      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.
      0 Votes

  • MS
    Mar, 2013
    Michelle
    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?
    0 Votes

    • BA
      Mar, 2013
      Bill
      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.
      0 Votes

  • DW
    Dec, 2012
    David
    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?
    0 Votes

    • BA
      Dec, 2012
      Bill
      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.
      0 Votes

  • NJ
    Oct, 2012
    N
    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?
    0 Votes

    • BA
      Oct, 2012
      Bill
      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.
      0 Votes

  • NJ
    Aug, 2012
    Natassha
    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?
    0 Votes

    • BA
      Aug, 2012
      Bill
      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.
      0 Votes