Bad Credit Time Limits

A subject of great concern to many of those with damaged credit is the issue of time limits. The two main categories are collection-related and reporting-related.

Collection Of Debts

Collections Action - A creditor or third-party collection agency can legally demand or request payment on a debt, via letters and phone calls, forever, as long as the debt remains unpaid. A debtor can order a third-party collector to cease communication, as per the Fair Debt Collection Practices Act, which should stop routine demands from that source. (See our Collection Agency FAQ for details.) In practice, the older a debt is, the less vigorous the collection efforts will be, and the more likely the creditor or collector will give up easily. And, unless the debt is secured by some type of property (e.g. a car), they cannot actually force a debtor to pay without a lawsuit.

Lawsuits - When a consumer is seriously delinquent (late) on a debt for a significant amount, there is the possibility of the creditor filing a lawsuit. The time limit for doing so is known as the statute of limitations, which is set by individual states. The relevant statute is the one for the state in which the debtor resided at the time of the delinquency. The expiration of the statute of limitations covering a debt will not necessarily prevent a lawsuit, but it will provide an absolute defense, whereby the debtor is simply required to file a response with the court, pointing out this fact, in order to have the suit dismissed. Here is a chart with the statute of limitations for each state and type of debt.

Judgements - If a lawsuit has already been filed and won by a creditor, there is another, separate statute of limitations for enforcing (collecting) the judgement. Here is a chart with the judgement enforcement time limits for each state.

Federal Taxes - Ten years from the date of the assessment for delinquent amounts, unless a lien has been filed. Tax liens on, for example, real estate, remain until the back taxes have been paid.

Student Loans - There is no statute of limitations or other time limit for lawsuits or other enforcement action on defaulted federal student loans.

Credit Reporting

The time limits for various types of information to appear on consumer credit reports are set by the federal Fair Credit Reporting Act.

Making payments or partial payments on bad debts does not effect the running of the credit reporting time limits, except in the case of tax liens and federal student loans. All other types of items should expire on schedule, based on the original dates, regardless of when or whether they are paid. There was previously a great deal of confusion over the starting point, which could have been interpreted as the date of the last activity on the account. This resulted in the possibility of "re-setting the clock" on an old bad debt by making a payment on it, or by paper-shuffling on the part of collection agencies. The issue was clarified in the 1996 amendments to the FCRA, which set a specific starting date related to the original delinquency date (see FCRA Section 605 (c) (1).)

Inquiries - Two years.

Late Payments - Seven years from the month in which the late payment was due. If there are multiple late payments in one account item, then they will each expire individually.

Charge-Offs - Seven years. The time runs from the date of the delinquency, plus 180 days. If a payment was due on an account on January 1, 2000, but the debtor defaulted, and never caught up to become current again, and the account is eventually declared a charge-off by the creditor, then the seven year reporting time limit starts running on July 1, 2000, with the item scheduled to expire from his/her credit reports on July 1, 2007. Here is our article on charge-offs.

Collection Accounts - Seven years. The running of this time limit is the same as with charge-offs. The date of delinquency still refers to the original delinquency with the original creditor, regardless of when the collection agency began working the debt. This includes debts that have been bought by a collection agency. Collection agencies cannot legitimately "re-set the clock."

Lawsuits And Judgements - Seven years or until the governing statute of limitations has expired, whichever is longer.

Bankruptcy (Chapter 7) - Ten years (from the date of entry of the order for relief or the date of adjudication.

Bankruptcy (Chapter 13) - Seven years.

Paid Tax Liens - Seven years from the date of payment.

Unpaid Tax Liens - Forever (unless paid - see above.)

Unpaid Federal Student Loans - Forever (unless paid, after which they can appear for seven years.)

The above time limits apply to credit reports which would be available to creditors for most types of credit applications. However, the credit bureaus are legally permitted to disclose older information in the following situations:

A credit application involving a principle loan amount of $150,000 or more.

An application for a life insurance policy with a payout of $150,000 or more.

An application for employment in a position paying $75,000 per year or more.