Three Important Time Frames for Bad Debt

If you ask several people how long a negative item can stay on a credit report, most likely the majority of them will say seven years. If you ask them when the seven years starts, the answers usually become a little more convoluted. This is one of three time frames you should understand when it comes to collections accounts so you can avoid making a costly mistake.

1. How long can a negative item stay on your account?

Seven years was the correct answer for most items, but not for everything. Among the exceptions are Chapter 7 Bankruptcy (10 years), child support (until paid), tax liens (seven years from the date it’s paid) and judgments (seven years, but they can be renewed and remain as long as 20 years). For the rest of the items, the seven years starts from the first delinquency that led to the charge off. In other words, no matter what that collector tells you, he doesn’t get to report it for an additional seven years just because they bought the account recently. Making a payment or settling a charged off debt doesn’t start the clock over again either, but it could affect the next item.

2. How long does a creditor have to file a lawsuit?

There is no short answer because it is governed by state law, but once an item becomes too old for a lawsuit it is referred to as a “time-barred debt”. The amount of time can be anywhere from two to 20 years and the type of account (installment vs verbal vs credit card etc.) are factors in addition to the state. Charts are available online, but it’s best to check with your state’s office of the Attorney General for more specifics. In some states, making a payment can restart the clock while in others, simply acknowledging the debt as yours can reset the timer. If you are sued on a debt you believe to be time-barred, seek legal counsel. Don’t ignore the debt as it could result in a default judgment against you which may be difficult to fight after the fact.

3. How long can a creditor continue to ask you for money?

This one is very straightforward. Until the debt is paid in full, they can continue to try to collect, meaning the can call and write you indefinitely. Regardless of the age of the account, any third party collector should adhere to the Fair Debt Collections Practices Act (FDCPA). If they don’t, you do have rights, including suing the collector. Many attorneys will take the case for free since they can collect attorney’s fees from the collector. If the debt is time-barred, you might consider sending a cease and desist letter as well which bars the creditor from contacting you unless there is a notification of change such as a lawsuit or if the account is being sold. This is one of the rights you have according to the FDCPA. If the debt is not time-barred, sending a cease and desist letter can sometimes cause the creditor to file suit so be careful.