Have you ever received a letter that an account will charge off? Neither have I. Great there’s nothing I need to write about. Okay, seriously I have yet to receive one and the reason I want to talk about this is because there are many people out there that think just because an account is charged off it means they are no longer responsible for the debt. This is not true at all. A charge off just means the creditor is able to move the account from their one part of their accounting books to another. In other words they just get to report it as a loss. This has nothing to do with the statute of limitations, and not really related to the time it takes for an account to come off your credit report. Simply put all this has to do with is how a creditor deals with the account for bookkeeping purposes. As for you, if you ever receive one of theses, you still owe the money. But what if you don’t have the money because of this horrible recession we are in?
Side note - * Unemployment is still too high for me to say we are not in a recession. Yes, for you economist out there I am ignoring the GDP growth stats. Even though companies are sitting on huge amounts of cash and we continually see record profits I think most average people like myself still feel the pain of the situation we are in.
Statute of Limitations
With respect to the statute of limitations each state has it’s own laws dealing with the length of time a creditor has to legally collect on a debt once the account has gone in default. Bills.com provides a great table to understanding the collection laws and statute of limitations of each state. In a nutshell some states provide protection for consumers after 2 years of default, while others up to 10 years, which means the consumer has a solid defense against a creditor potentially suing them to collect the money. Using the statute of limitations on their side a consumer facing a creditor in the court room would win if it is proven that the statute of limitations has expired for this consumer in their state. Okay, but who wants to deal with that. It’s always best to get your debts resolved and not have to worry about stretching out your unpaid bills over this amount of time. Then again we just experienced one of the most serious recessions in our lifetime so I can imagine many people in this situation not knowing what to do.
Let me put a hypothetical situation out here. If you happen to have the statute of limitations expire in your state for an old debt, and the statute of limitations in your state expired at 2 years. You’re cool, right? You shouldn’t have to worry about this debt haunting you anymore since the statute of limitations expired, right? WRONG! Your credit report has nothing to do with the statute of limitations. The statute of limitations is governed at the state level. Credit reports are governed at the federal level.
Credit reporting has nothing to do with a creditor’s legal ability to collect on a debt. Credit report rules are covered by the FTC in the document The Fair Credit Reporting Act. To make this simple an account that has gone into collections will be reported for 7.5 years. The time starts at 180 days after the first delinquency. But if it’s a bankruptcy it will be on there for 10 years, and federal student loans will continue reporting until they are no longer delinquent.
Bottom line – This is not going away fast or easily. Good news is that it will eventually go away and if you find yourself in this situation you as a consumer do have rights.