Statute of Limitations, Credit Report & Judgment

Your question contains a key misconception about the law that I think will be corrected by the time you reach the Recommendation section below.

Statute of Limitations

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 don't 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 the Bills.com Collection Laws and How to Tell Which Statute of Limitations Applies to Your Situation pages.

The page I just mentioned 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.

Remember: The passing of the SOL does not mean that a creditor cannot sue you. It means if a lawsuit is filed you should have an absolute defense against the lawsuit if you raise the defense. Also, keep in mind that the passage of the SOL does not prevent a creditor from calling you to collect on the debt; it simply provides you an absolute defense in court if the creditor files suit.

In Georgia, the statute of limitations for domestic judgments is seven years. In other words, a Georgia judgment is valid for seven years, unless it is renewed.

Credit Report and the 7½-Year Rule

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 7½ 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 7½ years to the date of first delinquency. Subsequent activity, such as resolving the debt, is irrelevant to this rule. The seven-year rule does not apply to all debts, however. Here are four exceptions:

• A tax lien can appear for seven years from the date of payment.
• A bankruptcy will appear for 10 years from the date of the final order.
• Federal student loans can be reported for as long as they are delinquent. (Private student loans follow the 7½-year rule.)
• A civil judgment can appear for seven years, or the length of a judgment’s statute of limitations in the consumer’s state, whichever is longer.

Learn the lifespan of a judgment in your state at the Bills.com Statute of Limitations Laws by State page.

The start of the seven-year 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.

Judgment

The creditor has a cause of action when the debtor defaults. If the creditor files a lawsuit and wins, the court will make its formal finding known in a document called a judgment. With a judgment in hand, a judgment-creditor has the right to collect the amount of the judgment using legal means. These vary by state and include wage garnishment, account levy, and lien. You mentioned Georgia. See the Bills.com resource Georgia Collection Laws and if you reside in another state, Judgment Garnishment.

Recommendation

The federal laws controlling the behavior of credit reporting agencies and what and when derogatory items can appear on a consumer’s credit report are irrelevant to a judgment-creditor’s ability to collect on a judgment. A credit report is not a legal record. Indeed, creditors have no requirement to report judgments or a credit account to the credit reporting agencies.

The fact that the judgment-creditor here has not yet reported the judgment on your credit report does not mean it will continue to not report it. Your most conservative option is to negotiate a settlement with the judgment-creditor. Make a negotiating point a requirement that it not report the judgment. Alternatively, if it has reported the judgment then make it a condition of the settlement that it remove the judgment.

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

Best,

Bill

Bills.com