Credit Repair: Understanding Time Limits And Statutes Of Limitation On Debt

There is quite a lot of confusion about the issue of how long an item can legally stay on a credit report. Oddly enough, people will really dig in their heels about what they believe to be true. There are about as many urban myths about time limits in the world of credit repair as there are Elvis sightings. 

The above comment is on one of our very popular YouTube videos on credit repair. Note the classic confusion and misunderstanding about the issue of statute of limitations and the length of time an item can stay on a credit report.  Also, notice the hubris in the post. On the topic of credit repair there are a lot of 'experts' out there that know just enough to be hopelessly confused. 

Statute Of Limitations

The period of years that a debt is considered to be legally enforceable is known as the statute of limitations. This is a law that determines how long after an event that legal proceeding may be initiated. For the purposes of this blog we are going to focus strictly on how it applies to consumer debt and credit reports. The length of time that a debt is considered legally owed varies by state. Practically speaking, this is the time window during which you can be sued for an unpaid debt. This has nothing to do with your credit report, and has no bearing on how long an item can be reported on your credit file. The clock starts ticking typically from the date of your last payment. 

 

 

If Statute Of Limitations On Debt Has Nothing To Do With Credit Reports And Credit Scores, Why Even Bring It Up?

As I mentioned in my last article on credit repair, the main method of boosting a credit score is establishing new positive credit accounts. Depending on the situation, however, settling certain debts plaguing a credit report may make sense. It is important for people to know that if a debt is already past the statute of limitations for their state, it is time barred (they can't be sued). Even though the item is no longer 'legally' collectible, it may still remain on your credit report (based on the rules of The Fair Credit Reporting Act). BUT, and this is a really, really, BIG BUT... if you start making payments again on a time-barred date you may waive your rights for protection under the statute of limitations. In essence, you may have reset the clock on that debt, and you may have provided the opportunity for a creditor to sue you. Yep, collection agents know how this works - and if they can get you to make even a small payment, the game may be back on.  How To Settle A Collection Debt.

The Overlap Between The Statute Of Limitations And The Fair Credit Reporting Act

Let's say that you live in a state that has a five year statute of limitations on credit card debt. Even though you may be past the five years and the debt is no longer legally collectible, it can still remain on your credit report for two more years. During this overlapping window is when people get very confused. Many times people believe that a time-barred debt can no longer remain on their credit file. The general rule for the length of time an item can stay on your report is seven years. The seven years is calculated using the date of last activity (usually the date of your last payment). So, by making one single small payment on an old debt you may have restarted both the statute of limitations and the seven year credit reporting period.  In direct response to the YouTube comment above, they are partially correct. In theory, the date of default is the date that the seven year clock should be based on. The reality is that collection agencies will use any reason that they can come up with to extend the number of years an item can stay on your credit file.  

How Long Derogatory Items Can Stay On Your Credit Report

Defaulted debts/charge-offs, late payments, foreclosures, and judgments can remain for seven years. 
A bankruptcy can stay on your report for ten years from the date of discharge.
A tax lien can stay on your credit file indefinitely. There is a new IRS program providing a way to get a paid tax lien removed. How To Remove A Tax Lien From Your Credit Report.

Can An Item Be Removed Early?

In some cases negative items can be removed early. As time passes, older collection items may not be able to be verified or the original creditor can not document the debt. We have letters available for such situations. These letters are available to members of our premium content site, ChristianMoneyPlus.

Live Credit Repair Workshop Wednesday Night (October 1, 2014)

This will be a 60 to 90 minute online webinar (length will depend on the number of questions). We will be doing this live on Wednesday night at 8:05 pm Eastern. I want to do this on our webinar platform which will allow me to do a more complete overview using the tools I don't have on a Hangout. Frankly, I am also not willing to give this valuable information away. If you are already a member of ChristianMoneyPlus, you can go for free. Just send me an e mail and I will reply with the link. If you are not a member, we would love to have you and the tuition is only $15. If you can't attend live, no worries - I will send out a link to the replay to all those that are enrolled for this session. 

I am limiting this one to 50 students as I want to keep things at a level where I can handle the Q and A without it getting crazy. Our shopping cart is already programmed to limit enrollment to 50 and go into 'sold out' mode after that.  Here is your link to sign up. $15 and you are on your way to a good credit score!

Helping you make the most of God's money!

James L. Paris 
Editor-In-Chief ChristianMoney.com 
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