Expired Unpaid Debt Appearing on My Credit Report

Keep in mind that there is no relationship between a state's statute of limitations (SoL) on enforcing a judgment for collecting a debt and what data appears in a credit report.

Let's step back a moment and talk about SoLs. All states have a body of statutes in their codes of law called, "Limitations of Actions," commonly referred to as the statutes of limitations. The idea behind these laws is that we as a society have decided that we do not want old debts hanging around forever. We want people and businesses to be able to move on with their lives without worrying about being sued. The length of time a creditor has to sue you depends on your state of residence and the type of debt. For example, many states allow longer for creditors to file suit to collect on closed-ended consumer loans than on credit card debts. Most states give credit card issuers three to four years to file suit after default, but some states allow as many as 10 years. Check out Bills.com page Collection Laws and Statute of Limitations.

This site has more information about statutes of limitations and a list of limitations by state. If a creditor files a lawsuit after the allowed time, the court will usually throw the case out and not allow the creditor to file suit again (called dismissed with prejudice). However, you must raise the issue of expired statute of limitations in a written response to the lawsuit, or else the court will not know that the statute of limitations has expired. Although the periods vary from state to state, I believe that there is only one (Ohio) that is longer than 10 years.

Here, the SoL in Arizona is three years, and Texas is four. If the date of last activity on that account was in 2004, then (I write this in 2009) five years have passed and the SoL has expired in both states. This means that if you are sued, you must raise the SoL issue in a timely manner (i.e., immediately) so that the court has notice of the SoL issue. However, because of the SoL issue, the chances of your being sued for this debt are very small.

Now let's turn to the appearance of this debt on your credit report. 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.

A creditor can sell a debt to a collection agency, and collection agencies routinely sell debts to each other. A creditor is not obligated to report an unpaid (or any other debt, for that matter) to the big-three credit reporting agencies. A collection agency that owns a debt is free to report it to a credit reporting agency.

Here, the Arizona university neglected to report your default on the debt, but the collection agency the university sold the debt to did. It may have done so for leverage purposes because it knows at this point there's little hope of collecting on the debt should they sue you.

As I mentioned, a default must be removed after seven years. This means that in 2011 (2004 plus seven years) you can ask the credit reporting agencies to remove that item from your credit report.

To learn more about credit reports, see the Bills.com credit report resources.

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

Best,

Bill

www.bills.com/