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Plan Well, Retire Well

Saving and investing your money

Old Debt: Does It Ever Go Away?


"I have a bill from six years ago that I never paid. If I made a payment on it now, would it re-start the seven year clock for getting it off my credit report?"

This question frequently comes in my workshops, so it is obviously an area of confusion.

The short answer is, No, making a payment on an old debt does not re-set the seven year clock for being reported on your credit history. However:

  • It happens sometimes, whether it's supposed to or not.
  • Making a payment could re-start the statute of limitations, which is an entirely separate issue from how long it shows up on your credit history.

The Seven Year Rule

Most negative information can only be reported for seven years. A debt cannot be "re-aged" or given a new start date because you made a payment. Even if the debt is sold from one debt collector to another, the original delinquency date does not change and the seven-year clock does not reset.

If you see a debt on your credit history that is more than seven years old, you should dispute that information with the credit reporting agency to get it removed.

There are some exceptions to the seven-year rule. That time limit doesn't apply for certain kinds of information or to credit reports provided for certain purposes. According to the Federal Trade Commission, which is the regulatory authority on this subject:

A credit reporting company can report . . . bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. There is no time limit on reporting information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you've applied for more than $150,000 worth of credit or life insurance. There is a standard method for calculating the seven-year reporting period. Generally, the period runs from the date that the event took place.

Statute of Limitations

Each state has laws that limit how long a creditor can sue you for nonpayment. These rules are statutes of limitations. The number of years varies from state to state and depends on the type of debt. Several sources that I read indicated that making a payment, or even agreeing to make a payment, could re-start the statute of limitations and re-start the clock for how long lenders could sue you. Even if the statute of limitations has expired, you still owe the debt, but the lender cannot sue you to collect.

The best overview of this subject that I found online was done by msn.com.

Conclusion

As I said at the beginning, the short answer is "No,' making a payment on an old debt does not change the seven-year period for being reported on your credit history.

Since it could re-set the statute of limitations check with a credit counseling organization or get legal advice if you're wrestling with this decision. To find a credit counselor, try the National Foundation for Credit Counseling or check the list of credit counselors approved by the Department of Justice to provide the financial counseling required for people filing bankruptcy.  http://www.justice.gov/ust/eo/bapcpa/ccde/cc_approved.htm). For legal assistance in Illinois, check Illinois Legal Aid to locate an agency that can help you. Just make sure you understand how the rules apply in your particular situation and location.



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Please check a new post on this blog for more about this topic. See "Can making a payment on an old debt be a mistake?" at http://web.extension.illinois.edu/chicago/eb141/20120202_4606.html
by Karen Chan on Thursday 2/2/2012